The National Pension Service (NPS) has decided to invest more in foreign stocks than in domestic stocks starting from next year.
As of the end of 2017, domestic stocks accounted for 21.1 percent of the NPS shareholdings. The organization is going to lower the ratio to 18% until the end of 2019, while increasing the share of foreign stocks from 17.4% to 20% during the same period.
On a value basis, domestic stock investment is planned to be maintained at 131.5 trillion won (US$118 billion) whereas foreign stock investment is increased from 108.3 trillion won (US$97 billion) to 145.5 trillion won (US130 billion). In addition, its foreign stock investment ratio is forecast to reach approximately 30% in 2023, twice that of domestic stock investment.
This adjustment is pursued as the NPS has invested a higher proportion of its assets in domestic stocks than foreign pension funds, which has led to a decline in profitability and an increase in volatility.
Furthermore, since the introduction of the Stewardship Code, concerns have risen over the possibility that the government may hold sway over private-sector companies via the NPS, one of the largest shareholders in many of them. If the NPS reduces its domestic stock investment, however, local companies can be less affected even if hedge funds like Elliott Management exercise shareholder rights to an excessive degree.
Meanwhile, the role of the NPS as a buffer against domestic stock market fluctuations caused by foreign investors is likely to be reduced with time. At present, the organization accounts for 7% of the domestic stock market capitalization.