Pension funds sell net $21 bn worth of shares in 2021

South Korea’s pension funds sold a net 24.5 trillion won ($20.6 billion) worth of Kospi and Kosdaq stocks this year, the largest annual net sales of domestic stocks ever, according to Korea Exchange (KRX) on Dec. 30. Korean pension funds sold a net 24.4 trillion won of Kospi stocks and 317 billion won of Kosdaq stocks in 2021.

The pension funds’ 2021 net sales of Korean stocks are threefold that of their second-largest annual net sales ever, 8.2 trillion won in 2009, and sevenfold that of the 3.4 trillion won sold in 2020.

Experts said the largest net sales are due to Korean pension funds’ reduction of the domestic stock proportion in their investment portfolios. In its mid-term asset allocation plan announced in 2020, National Pension Service (NPS) said it would curtail exposure to domestic equities to 16.8% by end-2021 and down to 14.5% by 2026.

“The prices and values of domestic shares soared in the first half of 2021. Basically, pension funds sell their equities when share prices increase,” said Kim Hak-gyun, head of research at Korea’s Shinyoung Securities Co.

However, the pension funds shifted to buying spree in December, absorbing a net 272 billion won worth of equities in the Kospi and Kosdaq markets during the month. Pension funds dumped local stocks in the first half while the markets declined further in the second, reducing their stock holdings. That allowed those funds to raise the holdings, market watchers say.

“NPS’ domestic equities exposure is estimated to be 17.5% now, decreased from 18.4% as of the end-third quarter. The pension service won’t continue the net selling spree next year, given its ample fund for new investment and the local share exposure plan.” Kim Byung-yeon, an analyst at Korea’s NH Investment & Securities Co.

SELL OLD LARGE-CAPS, BUY NEW IPO SHARES

Samsung Electronics Co. topped Korean pension funds’ most-selling stock in 2021. The annual net sales of Samsung Electronics shares reached 10.9 trillion won, nearly half of Kospi share sales of this year. The local pension funds focused on net selling of some large-cap shares, dumping a net 2 trillion won worth of LG Chem Ltd. stocks, 1.8 trillion won of SK Hynix Inc. stocks, 1.6 trillion won of Naver Corp. stakes and 1.1 trillion won of Hyundai Motor Co. shares. Samsung Biologics Co. was the only net buying pick by local pension funds, with 918 billion won worth of shares.   

Game developer Krafton Inc. was Korean pension funds’ top pick, with purchases reaching a net 1.2 trillion won. The local funds were also attracted to some newly-listed companies, with a net 686 billion won worth of stakes in mobile payment service Kakao Pay Corp., 393 billion won stakes in material solution provider SK IE Technology Co., 336 billion won shares in shipbuilding giant Hyundai Heavy Industries Co. and 280 billion won shares in biopharma SK Bioscience Co. The net purchases of new IPO shares come as newly-listed shares can’t be dumped within a year, due to IPO lock-up period, Shinyoung Securities’ Kim said.

Korean pension funds have sold large-cap stocks and bought new IPO stocks for years. As the local funds are increasing passive investment tracking the main bourse Kospi 200, they continue to purchase new large-cap stocks until their shareholding reaches the limit.

The domestic pension funds have accelerated net purchases of new large-cap IPOs as many big companies have gone public since 2020. Korean pension funds bought a net 218 billion won worth of shares in HYBE, the music label behind BTS, and a net 207 billion won worth of stakes in biopharma SK Biopharmaceuticals Co. Experts expect the pension funds to keep buying large-cap IPOs as big companies, such as electric vehicle battery maker LG Energy Solutions Ltd., retail giant Shinsegae Inc.'s e-commerce brand SSG.com and Hyundai Motor Group subsidiary Hyundai Engineering Co., are planning public offerings next year. 

Write to Hyeong-Gyo Seo at seogyo@hankyung.com
Jihyun Kim edited this article.