The National Pension Service (NPS) is to invest 1 trillion won ($873.5 million) in the Kosdaq stock market in the final quarter, buying small- and medium-sized firms’ shares. The NPS is also eliminating guidelines that included limiting investments to stocks whose market capitalization exceeds 100 billion won.
Unlike the primary market Kospi, the tech-heavy benchmark Kosdaq has been struggling with investors leaving the market. The Kosdaq has fallen more than 5 percent as of Oct. 28, while the Kospi was up 5 percent compared to a year earlier.
The NPS said Oct. 27 it will select 12 asset managers by Nov. 11.
Market insiders say the NPS is increasing its investments in the secondary market because it sees small and midsize companies on the market have reached a bottom.
“When compared to the second half of last year where the market was around 780, it has fallen 20 percent,” said Byun Joon-ho, an HMC Investment and Securities analyst. “Even when compared to overseas [stock markets] indices [the Kosdaq] can be seen reaching the bottom.”
The recent debacle of the Galaxy Note 7 that has affected large caps, including Samsung Electronics and Hyundai Motor, is expected to have a favorable influence on the secondary market.
In the first nine months of this year, the value of large caps have risen 3.2 percent and small caps’ value increased 3.6 percent, according to Mirae Asset Daewoo. However, the value of midcap shares fell 4.6 percent during the same time.
“Up until now, the midcap shares have struggled, but with the Galaxy Note 7 crisis, we expect a turnaround (for midcaps),” said Yoo Myoung-gan, a Mirae Asset Daewoo analyst. Currently the NPS invests in 260 stocks on both the primary and secondary markets. The NPS is planning to expand to 300 on the primary market and 700 in the Kosdaq. At the end of July the accumulated pension fund was estimated at 541 trillion won and an estimated 95 trillion won, or 18 percent, is invested in the Korean stock markets. The value of Samsung Group shares owned by South Korea's state pension fund jumped to 24.2 trillion won ($21.2 billion) in the first half of the year, reaching a quarter of its total investment in the local stock market, data showed.
The National Pension Service (NPS), which manages the world's third-largest public fund, allocates around 100 trillion won in its home market.
The NPS had 5 percent or more of a stake in 98 firms of South Korea's 30 largest business groups, totaling 62 trillion won in market value, according to CEO Score, a service specializing in domestic conglomerates' financial information.
It compiled related data from the NPS' regulatory filing. There are no official data available on its possession of stakes in firms that are less than 5 percent.
Samsung Group accounted for 25.1 percent of the NPS' local stock investment, as the combined value of its nine listed affiliates rose 12.5 percent to 24.2 trillion won from 21.5 trillion won at the end of last year.
Established in 1988 by the National Pension Act, the National Pension Scheme has served as the prime social insurance program of Korea, contributing to social stability and welfare through pension benefits in contingency of old-age, disability, or the death of the insured.
The number of insured persons has increased rapidly, and National Pension provides coverage to virtually every adult in Korea. As of June 2012, more than 20 million people were enrolled, and the number of beneficiaries exceeds 3.2 million, including 2.6 million old-age pensioners, 70,000 disability pensioners, and 460,000 survivor pensioners.
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