Stock market big hand pension fund net selling on day 32… When will it stop?

The domestic pension fund is recording net sales for 32 business days in a row in the domestic stock market, breaking the record longest. This is because the proportion of domestic stock investment out of the total investment capital must be adjusted to a certain level. As the stock price increases, the valuation increases, and when the proportion of investment increases due to the increased valuation, it is automatically sold to maintain the investment proportion.

Some of the originality that it is the main culprit in the stock price rise, but wise’ants’ all know it. Conversely, when the stock price falls sharply, the pension fund acts as a’shield’ to defend it. If the valuation decreases due to a fall in stock prices and the proportion of investment decreases accordingly, the stock is mechanically repurchased to increase it.

According to the Korea Exchange on the 13th, among the investors, domestic pension funds net sold domestic stocks for 32 consecutive business days until the 10th of this month after December 24 last year, which was Christmas Eve.

During this period, pension funds sold a total of 11 trillion 2276 billion won in net sales of 10,813 trillion won in the KOSPI market and 4145 billion won in the KOSDAQ market.

During that period, the KOSPI index rose from 2759.82 to 3100.58, and the KOSDAQ index rose from 923.17 to 964.31, up 12.35% and 4.46%, respectively. Although pension funds have built up a huge wall for sale, the stock index has risen. The pension funds did not prevent the stock price from rising, but because the stock price rose, the pension funds sold.

The reason can be guessed by looking at this year’s fund management plan announced by the National Pension Fund Management Committee in May last year. The national pension plan is to gradually reduce the share of domestic stocks from 17.3% at the end of 2020 to 16.8% at the end of 2021 and to around 15% by the end of 2025.

Apparently, the share of domestic stocks has decreased, but the total investment volume has not decreased. The target amount for domestic stock investment by the end of 2020 is 13.7 trillion won, and the target amount of investment by the end of this year is 142.5 trillion won, which is aimed at increasing by 4,800 billion won. This is because the new pensions paid by the people continue to flow into the investment principal.

The problem is that the stock index rose sharply.

As of the end of November last year announced by the National Pension Service, the annual return on domestic stocks was 20.39%. At the end of November last year, the KOSPI index was only 2591.34. Since the end of November last year, the increase rate of the KOSPI index has reached 19.65% by the 10th of this month. Assuming that the valuation of domestic stocks held by the National Pension Service is the original target of 13.7 trillion won, a 10% increase in the stock price will spontaneously increase 13.77 trillion won. This is more than three times the amount of domestic stock net increase of 4.8 trillion won by the end of this year. This is why pension funds sell domestic stocks mechanically.

Conversely, if the stock price plummets, the National Pension System is forced to buy domestic stocks on its own. Whenever the stock price falls by 10%, the size of domestic stocks held by the National Pension Service decreases by KRW 13.77 trillion. To match the proportion of holdings, it is a structure to buy back stocks.

The opinion that such an attribute of pension funds has a lot of positive aspects in that it reduces volatility in the domestic stock market is popular.

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