South Korea pension fund to invest more in local stocks as KOSPI rallies

SEOUL, May 28 : South Korea's state-run pension fund has decided to raise its target for domestic stock holdings amid a world-beating local stock market rally driven by the global AI boom, the Welfare Ministry said on Thursday. The National Pension Service (NPS), the world's third-biggest pension fund, set its end-2026 target ratio for domestic stock holdings at 20.8 per cent, up from 14.9 per cent, the ministry overseeing the fund's investment strategies said after a portfolio review. The end-2026 target was raised in January from 14.4 per cent set in May 2025, as surging local equities pushed the fund's holdings of local shares above target levels and authorities sought to curb downward pressure on the won currency from the fund's overseas investment. The NPS had been raising overseas investment exposure for years, while reducing domestic assets to seek higher returns and minimise the impact of its huge size - equivalent to 60 per cent of the country's gross domestic product - on local financial markets. South Korea's KOSPI stock benchmark, which has emerged as the world's best performer in the AI-driven rally, has risen nearly 90 per cent so far this year, breaching the 8,000 milestone. Last year, it rose 76 per cent, the biggest jump since 1999. Since taking office in June 2025, the Lee Jae Myung administration has vowed various policy efforts to boost the domestic stock market, with the KOSPI surpassing Lee's pledge of the 5,000 mark just over six months into his term, fuelled by chipmakers. A January decision to temporarily allow domestic stock holdings to exceed the target ratio without requiring rebalancing will expire in June, the ministry said. Still, the fund will expand the range of so-called strategic asset allocations - a tolerance band that reduces pressures on fund managers to forcibly reduce assets to meet target ratios - the ministry said, without giving details. "With Korea's semiconductor exports booming and expected to run for two to three more years, we expect the NPS may prefer to reserve exposures to such upside risks," Bum Ki Son, an analyst at Barclays, said in a note. "Rebalancing would also be seen working against other domestic institutions and retail investors that have been investing heavily in the Korean equity market, and therefore be politically sensitive," Son said. The target ratio for foreign stocks was set at 35.6 per cent for end-2027, while those for domestic and foreign bonds were set at 21.8 per cent and 7.4 per cent, respectively. Alternative assets were set at 14.3 per cent. For the next five years through 2031, the NPS set its target ratios for stock holdings, bond holdings and alternative investments at 55 per cent, 30 per cent and 15 per cent, respectively. The NPS held assets worth 1,610.4 trillion won ($1.07 trillion) at the end of February. Of the total, domestic stocks accounted for 24.5 per cent, while foreign stocks accounted for 35.6 per cent.