Korea’s pension fund to buy more overseas stocks, cut bonds

SOUTH KOREA’S National Pension Service ( NPS), the nation’s biggest investor, plans to allocate more funds to overseas equities as it seeks to boost returns.

The agency, which had 406 trillion won ( US$ 360 billion) in assets as of March, will raise the weighting of overseas stocks to 10.5 per cent of its assets in 2014, the Ministry of Health and Welfare, which oversees the NPS, said in a statement yesterday. That compares with the 2013 target of 9.3 per cent. The fund is keeping its target for domestic equities unchanged at 20 per cent and aims to pare domestic bond holdings to 54.2 per cent of assets next year from 56.1 per cent targeted for 2013.

“It’s inevitable for us to turn to overseas stocks for higher profits as we’re unable to actively invest in domestic equities because we possess a 6 per cent stake of the domestic stock market already,” said Lee Hyung Hoon, director of the national pension fund policy division at the health ministry.

Buying more international equities may expose the pension fund to overseas fund flows that have dragged the MSCI Emerging Markets Index by 10 per cent through yesterday from May 22.

That’s the day when US Federal Reserve Chairman Ben S Bernanke said the central bank could scale back asset purchases if it’s confident in sustained economic improvement.

South Korea’s Kospi ( KOSPI) index sank 5.6 per cent in that time. The benchmark gauge added 0.4 per cent at the close in Seoul after a three- day, 2.6 per cent slump. It trades for 8.6 times projected 12-month profit, compared with the developingnation gauge’s 9.8 times, data compiled by Bloomberg show.

Lower appetite for risky assets prompted international investors to sell a net US$ 2.8 billion of South Korean equities this month, the data show.

Net sales of US$ 867 million yesterday were the most since August 2011.

The NPS aims to raise the proportion of alternative investments including infrastructure, property and private equity to 11.3 per cent of assets in 2014, according to today’s statement.

That’s up from the 10.6 per cent objective for this year. The fund plans to keep its target for overseas bonds unchanged at 4 per cent.

“Increasing the portion of foreign equities looks to be an effort carried out to diversify the agency’s investment portfolio,” said Han Sang Soo, a Seoul-based fund manager at Samsung Asset Management Co, which oversees US$114 billion. — Bloomberg