National Pension Service Expands Currency Hedging to 15% to Counter Exchange Rate Risks

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1. National Pension Raises Currency Hedging Ratio from 10% to 15%, Adopts Flexible Operation Policy

- Key Summary: The government convened the National Pension Fund Management Committee on the 14th and raised the Fund Management Division's strategic currency hedging ratio from 10% to 15%. With the won-dollar exchange rate fluctuating above 1,500 won, a flexible operation policy was also adopted to allow further expansion of the ratio if foreign exchange market conditions deteriorate. The committee emphasized that expanded hedging is necessary to reduce portfolio volatility and secure stable foreign currency for overseas investments. Meanwhile, the New Framework Planning Group is reviewing the introduction of a 'currency-neutral performance evaluation system' and is also conducting discussions to prepare a medium-term asset allocation plan for 2027-2031.

2. National Pension Focuses on Undervalued and Defensive Stocks, Scoops Up Materials and Components on KOSDAQ

- Key Summary: The National Pension Service rebalanced toward undervalued stocks and defensive plays during Q1's volatile market conditions. Stake increase disclosures totaled 142 cases—96 on KOSPI and 46 on KOSDAQ—up 31 from the previous quarter's 111 cases, with Paradise, at 0.81 times PBR, recording the largest stake increase. The fund also increased holdings in financial stocks such as KB Financial (105560.KS) and DB Insurance (005830.KS), where expectations for share buybacks and dividend increases have been highlighted. On KOSDAQ, it continued selective buying of semiconductor materials, components, and equipment stocks including Hana Materials (166090.KQ), VM (089970.KQ), and Korea Circuit (007810.KQ) for the second consecutive quarter, targeting the trickle-down effects from AI and data center demand.

3. Korean Retail Investors Betting on Semiconductor Crash Face Headwinds

- Key Summary: From the 1st to 13th of this month, Korean investors' top net purchase in overseas stocks was the SOXS ETF, which tracks three times the decline of the Philadelphia Semiconductor Index, with $203.8 million (approximately 301.8 billion won) invested as retail investors betting on semiconductor stock crashes piled in. iShares 0-3 Month Treasury Bond ETF (SGOV) also ranked fourth in net purchases at $97.77 million (approximately 144.6 billion won), confirming a pattern of investors either anticipating market crashes or fleeing to cash-equivalent assets. However, SOXS, which was at $48.74 on March 30, closed at $22.42 on April 13, plunging 54% in two weeks, leaving investors concentrated in semiconductor inverse ETFs facing massive losses. Securities analysts suggest that additional "averaging down" investments to recover losses have artificially inflated net purchase volumes.

4. Meta Revives, Expected to Overtake Google in Ad Revenue for First Time

- Key Summary: Market research firm eMarketer projected that Meta's global digital advertising net revenue will reach $243.46 billion (approximately 360.76 trillion won) by year-end, surpassing Google's estimated $239.54 billion (approximately 355.02 trillion won) for the first time. This marks the first reversal since eMarketer began tracking the rankings in 2012—14 years ago—driven by Instagram Reels, whose U.S. viewing time increased 30% year-on-year through AI recommendation systems, and the advertising automation tool 'Advantage+'. Meanwhile, Google's U.S. search advertising market share is expected to fall below 50% for the first time in about a decade, to 48.5% this year. Meta also unveiled 'Muse Spark', a closed AI model that is the first output from its AI research organization Meta Super-Intelligence Lab (MSL), and is accelerating its transformation into an AI company based on its 3.569 billion SNS users.

5. Tough Economy and Falling Real Estate Market Push SME Loan Delinquencies Up 20%

- Key Summary: The delinquency rate on SME loans at five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup) rose to 0.67% at the end of February, up 0.17 percentage points from year-end (0.50%), with some banks reporting a 20% surge in delinquent amounts year-on-year, triggering alarms. The delinquency rate on individual business owner loans also rose to 0.63% during the same period, more than quadruple the 0.15% level in 2021. Loan balances for vulnerable self-employed borrowers have swelled by more than 23 trillion won over the past three years to 114.6 trillion won, and 61.4% of SMEs have interest coverage ratios below 1, meaning six out of ten cannot cover interest payments with their earnings. Shinhan Bank, KB Kookmin Bank, and Hana Bank are preparing support measures including interest reductions and repayment deferrals, but the consensus is that the rising delinquency trend will continue for some time as international oil prices surge and high exchange and interest rates persist.

6. LS Eco Energy Rides Mega Cycle to Record Results

- Key Summary: LS Cable & System subsidiary LS Eco Energy (229640.KQ) posted Q1 revenue of 296.4 billion won and operating profit of 20.1 billion won, growing 29.8% and 31% year-on-year respectively to achieve record quarterly results. Surging demand for ultra-high-voltage cables for AI data centers drove a 177% jump in that business segment's sales, while expanded sales of high-value-added products pushed the operating margin to 6.8%, well above the industry average of 3-4%. In Vietnam, the company is directly benefiting from expanded transmission and distribution network investment under the government's 8th National Power Development Plan (PDP8) as the only local producer of ultra-high-voltage cables, while exports to Europe and Southeast Asia are also expanding. Additionally, last month it signed a 30 billion won convertible bond exchange cooperation agreement with Lynas, the world's second-largest rare earth supplier, marking a full-scale entry into the rare earth business spanning from raw material procurement to metal product manufacturing.