Pension funds and public funds, including the National Pension Service (NPS), are expected to tone down their aggressive stock purchasing after boosting the KOSPI market by purchasing large-cap stocks since August.
As negative indicators of the global economy have recently been announced, an increasing number of investors prefer more risk-free assets, stopping the upward movement of the index. Securities companies said these funds are less likely to continue their strong buying trend until the end of the year.
Pension funds and public funds together bought a total of 5.05 trillion won (US$4.22 billion) worth of stocks on the KOSPI market from Aug. 1 to Oct. 4, according to the Korea Exchange (KRX) on Oct. 6. This is in stark contrast to the fact that foreign and retail investors sold off 3.55 trillion won (US$2.97 billion) and 1.29 trillion won (US$1.08 billion) worth of stocks, respectively.
Pension funds and public funds purchased mainly large-cap stocks, propping up the index. They bought KOSPI market bellwether Samsung Electronics Co. the most over the same period. The amount of net purchases came to 1.58 trillion won (US$1.32 billion). In addition, they purchased 280 billion won (US$234.11 million) worth of Celltrion Inc., 273.50 billion won (US$228.68 million) of Hyundai Motor Co., 175.80 billion won (US$146.98 million) of SK Hynix Inc., 158.20 billion won (US$132.26 million) of Naver Corp., 139.60 billion won (US$116.71 million) of SK Telecom Co., 132.30 billion won (US$110.59 million) of POSCO Group, 113.30 billion won (US$94.71 million) of Fila Korea Ltd., 103 billion won (US$86.08 million) of KODEX 200 and 102.40 billion won (US$85.58 million) of Hyundai Mobis Co.
However, securities firms believe that these funds will not maintain their strong buying trend until the end of the year. They already net sold 42.10 billion won (US$35.19 million) worth of KOSPI-listed stocks on Sept. 29, ending their buying spree that last 25 days in a row. They also sold 164.40 billion won (US$137.40 million) worth of stocks on Oct. 4, showing the biggest net sale since 285 billion won (US$238.21 million) on March 14.
In particular, the NPS, the biggest investor among pension funds, is planning to reduce the ratio of domestic stocks in its investment portfolio in the medium and long term to protect the rate of return. It aims to reduce the ratio of domestic stocks in its total operating assets by 0.7 percentage point from 18.7 percent at the end of last year to 18 percent at the end of this year, according to the NPS’ asset allocation plans for 2019. In contrast, it is planning to raise the figure for overseas stocks by 2.3 percentage points from 17.7 percent to 20 percent.
Lee Na-ye, an analyst at Korea Investment & Securities Co., said, “The ratio of domestic stocks in NPS’ total operating assets stood at 16.3 percent as of July, falling short of its goal for this year. However, the figure will surpass 17 percent at the end of September considering the size of net purchases and the rally in the index after August.”
She added, “The investment sentiment to extremely avoid risk assets has slightly improved and KOSPI’s 12month forward price earning ratio (PER) has been recovered to 11 times, weakening the attraction of valuation. So, we believe that the NPS’ strong buying will slow down. The NPS has continued to show its strong buying for two months but it is highly likely to control the pace for a while.”
With global economic indicators continuously falling short of market expectations, risk assets have lost their appeal. Since the strong buyer is expected to be gone, it is also difficult to expect the influx of foreign capital. The U.S. Institute for Supply Management (ISM) recently announced that the purchasing manager index (PMI) in the service industry in September decreased from 56.4 to 52.6 last month, falling short of 55.3 of expert expectations. Economic Indicators for the Euro zone still remain weak as well.
Kim Gwang-hyun, an analyst at Yuanta Securities Co., said, “Institutional investors are showing a weaker buying trend and foreign investors are selling off domestic stocks. As variability in exchange rates is highly likely to be expanded in the short term, the supply and demand environment unfavorable to foreigners will be created.”