SEOUL, Aug 7 (Reuters) - South Korea’s National Pension Service (NPS) and other public pension funds have pumped a record 1.5 trillion won ($1.24 billion) into domestic equities this month so far, as local financial markets hit multi-year lows on U.S.-China trade tensions.
The public pension funds, including NPS, the third largest in the world managing 685 trillion won ($563.6 billion) in assets, bought 520.7 billion won ($428.97 million) worth of shares on Monday as the stock market tumbled 2.6%.
It was their largest purchase on a daily basis since August 2011. They acquired another 432.8 billion won worth of stocks on Tuesday.
These buys come at a time when authorities are scrambling to stabilise financial markets and have stressed upon the need of institutional investors extending a helping hand.
South Korea’s main stock index KOSPI has fallen more than 5% in August, hitting over three-year low on Tuesday on escalating trade tensions. Markets were already reeling under slowing growth, sluggish exports and trade risks due to a diplomatic row with Japan.
The net buying of 1.5 trillion won so far in August by public pension funds, including military and teachers’ funds, helped in offsetting foreign net selling of 1.3 trillion won. KOSPI pared most of previous session’s losses and ended 0.41% lower on Wednesday.
“Public pension funds recently helped preventing the stock market from further fall, and it seems that the NPS has played a crucial role as it has the biggest capacity among those public pension funds,” said Na Jeong-hwan, an analyst at DS Investment & Securities.
The NPS declined to comment on the details of its recent investment or whether it was in discussion with financial authorities on playing a role in stabilizing the market.
“As a long-term investor, the NPS is monitoring market volatilities and makes decision within an allowable range and plan for profitability and stability,” an NPS spokeswoman said.
Pension funds have bought stocks worth a net 4.6 trillion won this year as of Aug. 6, compared with net selling of 1.1 trillion won in 2018. The fund infusion on Aug. 5 by pension funds was the highest since August 2011, when they had picked up stocks worth 12.8 trillion won after a U.S. credit rating downgrade by S&P spooked global markets, including KOSPI.
South Korea’s Financial Service Commision Vice Chairman Sohn Byung-doo said on Tuesday the government is considering strengthening the role of institutional investors to mitigate market volatilities.
He also said “pension funds’ role is important as they have the biggest capacity to buy stocks.”
A financial industry source familiar with the matter said “the pension invests with a mid- and long-term perspective, so the NPS may have considered this timing as a good chance for bargain buying.”
The NPS has set this year’s asset allocation to local stock market at 18%. The allocation had reached 17.5% as of first quarter, according to its website, implying that the pension still has a bit of room to invest in the local stock market. ($1 = 1,214.4800 won) (Additional reporting by Hayoung Choi; Editing by Jack Kim and Rashmi Aich)