NPS Switches to
Steep depreciation of Korean currency given as reason for investment plan revision
The National Pension Service plans to revise its investment plans by giving a higher priority to domestic investment due to an extensive depreciation of the Korean won't value.
Manager Kim Sun-jong of the National Pension Service Fund Management Headquarters, said it is not rational to make investments overseas when the value of Korean currency has fallen so low.
He said it makes more sense to make investments at home rather than overseas now due to unclear market conditions and the depreciation of the won't value vis-a-vis the U.S. dollar and he is considering revising the investment plan, at least partly, in favor of the domestic market.
The NPS had a total of 229 trillion won in retirement funds and most of the funds allocated for overseas investment would now be redirected to domestic stocks. Officials of the pension service said they feel some 2 trillion won would be switched to the domestic stock market.
This means that the NPS would be investing 12 trillion won in total in domestic securities, as 10 trillion won was originally allocated for investment in the domestic stock market.
But officials cautioned that the exact amount to be invested would depend on the stock market situation.
Officials of the Ministry of Health, Welfare and Family Affairs also agreed that the won lost too much ground against the U.S. dollar, with the exchange rate ballooning to 1,148 won per dollar, thus clouding the prospects for overseas investment. They said serious consideration is now being given to revising their investment plan to channel more funds to the domestic stock market.
The officials said funds allocated for investment in securities is being reduced, and therefore, the funds to be allocated to the domestic stock market would be those allocated to be invested in overseas stocks.
Of the available funds totaling 229 trillion won, the NPS has allocated 4.2 percent of the fund, or 9.6 trillion won, for investment in overseas stocks. They said they plan to increase the fund by 6.8 percent by the end of the year, which would then total 240 trillion won.
In other words, NPS will have 6.7 trillion won in investment funds by the end of the year, but now it plans to switch a substantial part of the fund to stocks at home.
With the KOSPI index down as low as the sub-1,400 level, the NPS bought 751.8 billion won worth of shares at the beginning of September. NPS officials said they plan to spend 1.2 trillion won to buy domestic shares, but with the stock prices down so much, they are encouraged to increase that amount. They have already set up a contingency plan to take advantage of the large fall in stock prices in recent months.
What profits they make from overseas investments will be offset with the losses from the depreciation of the Korean won against the U.S. dollar, the NPS officials said on their plan to readjust the investment plan. The fund management committee of the NPS will meet in October to make a final decision on the investment plan revision.
The officials believe that the committee will approve the revised investment plant without much trouble as the domestic stock market has been hit by foreign investors pulling their funds out of the country, resulting in a significant drop in the price of stocks.
But the criticism that the NPS's decision to invest in domestic stocks was initiated to keep the stock price index up was denied by the NPS, who said that its decision to was solely motivated by the fall in the stock prices. nw
President Park Hae-choon of National Pension Service.