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National Pension Fund: Surfing the Wave of Change
National Pension Fund makes the move toward buying blue chip stocks
National Pension Fund: Surfing the Wave of Change
  • By matthew
  • August 13, 2010, 14:48
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The national pension fund purchased stocks worth over two trillion won this year alone. As of May 13, the national pension fund has purchased stocks estimated at 2.536 trillion won in net value. This stands in stark contrast with last year when it sold 8.2203 trillion won worth of stocks.

In particular, what is significant is that the national pension fund chose to buy 30.06 million worth of stocks over two days, from May 6 to 7, during which foreign investors sold stocks worth 1.9973 trillion won following a more than 2 percent decline in the New York Stock Exchange.

Stock analysts attribute such rapid decline in stock prices to growing concern over the financial crisis in southern European countries, saying that the national pension fund instead chose to buy stocks at lower costs.

The national pension funds’ move to purchase massive amount of stocks at lower costs has resulted in counteracting the impact of a feared fund run as well as foreign investors’ massive selling, cushioning the rapid fall in domestic stock prices. As such, the National Pension Fund played a role of much-needed savior in preventing a rapid fall in domestic stock prices.

In April, the fund chose to buy different blue chips, probably affected by the first quarter earnings report announced in April of this year. Until then, the national pension funds’ stock investment strategy focused on the purchase of blue chip stocks in equal amounts. This year, however, the fund appears to have made stock investments in consideration of the quarterly earnings report, instead of conforming to previous strategies.

The blue chips that the funds purchased from January through mid-February of this year include Samsung Electronics, Kia Motors, Hana Financial Holdings, Hyundai Heavy Industries, Korea Electric Power Corporation, Foreign Exchange Bank, Samsung Electro-Mechanics, POSCO and Doosan Heavy Industries.

However, the shares that the fund purchased over the last month was nowhere to be seen this time around. The previous list of stocks were replaced by a slew of new companies such as Hyundai Motors, Hynix, Hyundai Steel, Shihan Financial Group, LG Display, LG Electronics, Hyundai Mobis, Samsung Fire Insurance and Korean Air.

Stock analysts point out that such shares as Hyundai Motors and Hyundai Mobis, previously left behind 30 rankings, are among the top-class shares in the funds’ portfolio. He attributed the change in the portfolio as the fund’s preference for stocks with good earnings reports and better growth potential.

As a result, investors are now wondering where the national pension fund is heading - an institution which has emerged as an influential stock investment with leverage totaling approximately 50 trillion won.

Given that the national fund was influential enough to offset the potentially rapid fall in domestic stock prices caused by foreign investor’s massive sellout since late April of this year, small-time investors are keenly aware of such a investment move by the pension fund.

Considering that the fund sold more than 10 trillion worth-of shares last year, stock analysts are forecasting that the fund will continue to purchase shares this year. However, some estimate that it would be hard to give the pension fund a decisive role in defining stock market trends given that the fund is only allowed to make stock investments totaling five percent of the entire domestic stock volume.

Numerous stock analysts are forecasting that if stock prices remain between 1,650 won and 1,750 won per share, the national pension fund will leverage between 4 trillion won and 13 trillion won through stock investment, adding that the fund is likely to refuse to play a leading role in the stock market given its pronounced conservative attitude towards stock investment.