The National Pension Service's (NPS) expansion of domestic equity holdings raises concerns about worsening concentration in Korea's stock market. On the 28th, the NPS sharply raised its target allocation for domestic stocks from 14.9% to 20.8%. It also widened the permissible range allowing investment of an additional 5 percentage points above the target, enabling holdings of up to "25.8% plus alpha." The NPS explains that this reflects concerns that the current domestic stock allocation exceeds its limit, which could otherwise trigger a pension-driven selloff that rattles the market.
However, it is hard to escape the criticism that putting the long-term profitability and stability of the public pension on the line out of concern over immediate market swings is tantamount to putting the cart before the horse. Moreover, the higher the NPS raises its allocation to volatile domestic stocks, the more its returns are bound to fluctuate sharply. Indeed, according to data the NPS released on the 29th, its return for the first quarter this year stood at 4.42%. While the NPS return reached the 10% range as recently as the end of February this year, the March return plunged due to the war in the Middle East, significantly eroding overall quarterly performance. The bigger problem is that, at a time when by 2030 the pension payouts will exceed the premiums collected, frequent changes to asset allocation that harm fund stability will inevitably undermine public trust.
The problem of market funds concentrating due to the emergence of "Samjeon-nix leverage" is also serious. The single-stock 2x leverage products on Samsung Electronics and SK hynix, introduced to prevent retail investors from moving overseas and to stabilize the exchange rate, absorbed 3.9 trillion won within three days of launch. With the domestic exchange-traded fund (ETF) market having surpassed 500 trillion won, investors are selling diversified ETFs and rushing into leveraged products, amplifying volatility. Since single-stock leverage products were launched, the stock market has continued to see a pattern of "KOSPI rising, KOSDAQ falling." The already severe polarization within the KOSPI has grown even worse. Even on this day, when the KOSPI surged 3.5% to soar to 8,476 and reached an all-time high, the number of advancing stocks was only 210, while declining stocks numbered as many as 688.
In stock investing, defending against losses is as important as maximizing returns. Warren Buffett, the global investment guru, also cited "Don't lose money" as his first principle. Yet recently the domestic market has been overrun by short-term trading, all-in betting, and direct investment—the exact opposite of the basic principles of investing (long-term, diversified, indirect). It is at times like these that investors must strictly uphold the fundamental values of investing: moving away from short-term gains, reducing market volatility, and pursuing long-term returns.
