National Pension Service Criticized Over Stock Market Support Fund Allegations

[Anchor]

We have reporter Han Jiyeon with us for Thursday's Friendly Economy. Han, the National Pension Service faced heavy criticism during this parliamentary audit, didn't it?

[Reporter]

The focus of the criticism was that the NPS held onto stocks instead of selling them as its rules dictated.

Opposition lawmakers lashed out, asking if the National Pension Service was acting as a stock market support fund.

The rules in question refer to rebalancing.

The National Pension Service manages nearly 1.7 quadrillion won by allocating funds across assets like stocks and bonds based on predetermined ratios.

For instance, if the target stock allocation is set at 15% and stock prices rise to push the proportion to 25%, the excess is sold to lock in profits. Conversely, if prices drop, more is bought to adjust the ratio.

It is a sort of automatic brake that sells when prices are high and buys when they are low.

However, as the stock market heated up this year, the National Pension Service released this brake.

At the end of January, when the Kospi was eyeing the 5,000 mark, it decided not to sell even if targets were exceeded until June.

By the end of May, it raised the domestic stock target weight from 14.9% to 20.8% and even expanded the allowable buffer so that it could hold up to 28.8%.

This meant the rules of the game were changed twice mid-stream.

Even so, the allocation at the end of June hit 29.1%, surpassing even the widened limit.

Looking at how other entities handled this:

The Pension Fund for Private School Teachers and the Korea Post have never delayed in this manner over the past 10 years, and the Government Employees Pension adjusted its holdings back within the limits according to the rules within a month whenever it exceeded them.

Opposition lawmakers argued that the rules were changed after the president repeatedly mentioned the proportion of domestic stocks.

[Anchor]

So there have been criticisms that the National Pension Service amplified stock market volatility.

[Reporter]

The criticism is that while the National Pension Service held its ground, foreign investors sold off massive amounts at the peak and exited, leaving retail investors to absorb the dumped volume.

The Kospi soared to the 9,300 range during trading on June 19, before plunging nearly 6% in a single day on July 29 to tumble back down to the 5,600 range.

Circuit breakers were even triggered on both the Kospi and Kosdaq for the first time in history over two consecutive days.

In the meantime, foreign investors unloaded more than 190 trillion won this year alone up until early August.

Particularly in May and June, when the stock market was at its hottest, they sold off 110 trillion won worth.

Conversely, retail investors bought 110 trillion won worth.

Averaging it out, they bought around the Kospi 7,400 level, and as the index slumped below that, securities firm analyses showed that 80% of retail net purchases entered the loss zone.

As stock prices fell, the value of domestic stocks held by the National Pension Service shrank by 124 trillion won in July alone, and total funds decreased by 181 trillion won over the same period.

Critics point out that while rules dictate buying stocks during a downturn to refill allocations, capacity to buy was limited right before the sharp drop because holdings already exceeded limits.

That said, concerns over semiconductor industry conditions also heavily influenced the sharp drop in July.

Analyses also emerged that the double-leverage ETFs for Samsung Electronics and SK Hynix, newly introduced at the end of May, further amplified volatility.

[Anchor]

The National Pension Service must have offered explanations as well; were they convincing?

[Reporter]

No. They responded that if they had sold according to the rules, the market would have collapsed instead.

Chairman Kim Sung-joo stated that without the deferral, they would have had to dump about 800 billion won a day, roughly 10% of the Kospi's daily trading value.

He emphasized that the decisions were reached unanimously with private experts and that government orders have never simply been pushed through.

He also explained that the reason meeting minutes are not disclosed immediately is due to a 2013 regulation allowing disclosure of agenda items that could impact the market to be delayed by up to four years through a Fund Management Committee resolution.

The National Pension Service stated that even after going through the sharp drop in July, its performance is estimated to have been better than if it had operated according to the original rules.

However, they attached a caveat that results can vary significantly depending on the period evaluated.

The total return rate as of the end of July, the most recently disclosed figure, stood at 14.8%, while the domestic stock return rate was 60%.

However, with the stock market slipping further afterward, even the 6,000 threshold has become precarious this week, leaving no room for complacency.

Remaining homework tasks also exist.

The Fund Management Committee, which determines the investment direction of the National Pension Service, is chaired by the Minister of Health and Welfare and has a high proportion of government-side members.

The chairman mentioned that subscriber representatives, such as office workers and self-employed individuals who pay into the pension, should be increased.

The meeting minutes detailing the rule changes will not be made public until 2030, and opposition lawmakers are even threatening a parliamentary investigation.
※ Please note: This article was translated by AI and may contain errors.