The National Pension Service is considering increasing the share of domestic equities in its investment plan for the next five years. With the KOSPI rising on a recent semiconductor rally, the NPS share of domestic stocks has already exceeded its target by 10 percentage points. As the local market climbs, pulling funds out would weigh on returns, yet continuing to raise the domestic equity weight requires guarding against concentration in a specific asset, leaving it in a dilemma. The specific operating plan will be finalized on the 28th.

According to the Ministry of Health and Welfare on the 17th, the National Pension Fund Management Committee held its fourth meeting on the 15th and received an interim report on formulating the 2027∼2031 mid term asset allocation plan. The committee will meet again on the 28th to finalize the mid term asset allocation plan.

Mid term asset allocation is a medium to long term investment plan that sets how much the National Pension Service will invest in each asset over the next five years. Each year by the end of May, the committee deliberates and decides target weights by asset class for the next five years.

The key issue in this mid term asset allocation is whether the National Pension Service will adjust its target weight for domestic equities. Based on the mid term asset allocation established last year, this year the target portfolio is 14.9% domestic equities, 37.2% overseas equities, 24.9% domestic bonds, 8.0% overseas bonds, and 15.0% alternative investments. The domestic equity target weight was 14.4% and was raised by 0.5 percentage points at the committee meeting in January.

The domestic equity weight already far exceeds the target. According to NPS Investment Management, as of the end of February, domestic equities accounted for 24.5% (395 trillion won) of total assets. As the KOSPI rose, the valuation of stocks increased and the share automatically went up, exceeding the target by about 10 percentage points. Given that the KOSPI rose 18.8% from 6,244.13 on February 27 to 7,493.18 on the 15th, the domestic equity weight is estimated to be well above the target and the investment scale to have expanded to about 469 trillion won. The fund size, which was 1,458 trillion won at the end of last year, is also said to have surpassed 1,700 trillion won.

The NPS now has to decide at the committee meeting on the 28th whether to further raise the domestic equity target weight or to sell domestic stocks to reduce the weight. If it trims the domestic equity share while the KOSPI is rising on expectations of commercial law amendments and a favorable semiconductor cycle, it may miss additional gains. There are also concerns that selling to adjust the weight could cause a market shock.

On the other hand, some argue for moderating the pace. If the NPS keeps increasing the domestic equity share, volatility could rise when concentration in a specific asset class and a market shock occur. Expanding the domestic equity target weight could also invite criticism that the government is using the NPS to prop up the market.

Against this backdrop, there is speculation that the target weight for domestic equities will be raised but the allowable range will be narrowed to moderate the pace.

Jeong Eun kyung, Minister of Health and Welfare and chair of the National Pension Fund Management Committee, said in opening remarks at the committee meeting on the 15th that the ministry would actively support the development of a reasonable plan.