🚨 Pension Fund-Led Market Rebound

Today Korean Economic News | 2025.01.17

📌 Pension Funds Lead KOSPI Rebound... Invested 1.9 Trillion Won in a Month

💬 Pension funds continue net buying in the domestic stock market, leading a market rebound despite major negative factors. Despite selling pressure from foreign and individual investors, pension funds are playing an important role in providing market stability.

1️⃣ Easy to Understand

Recently, pension funds (such as the National Pension Service) acting as 'big hands' in the stock market have been actively buying stocks, leading a market rebound. They net purchased stocks worth as much as 1.9 trillion won over a month, meaning they steadily bought even as other investors were selling.

Using an everyday analogy, pension funds are like opening an umbrella to protect the market on a rainy day. While people around are running away to avoid the rain, pension funds are instead staying in place, providing stability.

For example, think of a neighborhood flower shop run by Mr. Kim. In a situation where the economy suddenly worsens and many customers reduce their flower purchases, if a local hotel steadily buys a certain amount of flowers every week, Mr. Kim's flower shop could operate stably without a sharp decline in sales. The role pension funds play in the stock market is similar to this.

This move by pension funds is not simply for market stabilization, but also a strategic choice to generate returns by investing in undervalued quality companies from a long-term perspective.

2️⃣ Economic Terms

📕 Pension Fund

Pension funds refer to institutions that manage large-scale funds created to secure retirement life for workers.

• The National Pension Service, Government Employees Pension, Private School Teachers Pension, and Military Pension are representative pension funds.
• They have a long-term investment perspective and employ asset allocation strategies that consider both stability and profitability.

📕 Net Buying

Net buying refers to the net amount calculated by subtracting the amount sold from the amount purchased by a specific investment entity during a certain period.

• A positive net buying amount means that the amount purchased during the period was greater than the amount sold.
• Net buying trends by investment entities such as institutions, foreigners, and individuals are important indicators for understanding market flow.

📕 Market Stabilization

Market stabilization refers to activities aimed at mitigating sharp fluctuations in stock prices and maintaining continuity of transactions.

• Excessive volatility undermines investor confidence and harms the efficiency of capital allocation, making its prevention important.
• Interventions by pension funds or policy authorities, and systemic devices such as circuit breakers are used as means of market stabilization.

📕 Valuation

Valuation refers to the process of evaluating the value of a company or asset.

• The value of a company is measured through various indicators such as price-to-earnings ratio (PER), price-to-book ratio (PBR), and dividend yield.
• Long-term investors like pension funds often adopt a strategy of finding and investing in undervalued (low valuation) quality companies in the market.

3️⃣ Principles and Economic Outlook

💡 Pension Funds' Investment Strategies and Market Impact

• The large-scale net buying by pension funds can be seen as based on systematic investment strategies rather than simple market intervention. Pension funds generally have a long-term investment perspective, focusing on corporate fundamentals and mid-to-long-term growth potential rather than short-term market fluctuations. The recent active buying seems to be based on the judgment that the valuation of the domestic stock market is undervalued by global standards. They are showing buying interest particularly centered on large-cap quality stocks with solid fundamentals, which well reflects the character of pension funds seeking long-term stable returns. This move by pension funds provides strong buying momentum to the market while also giving psychological stability to investors. Additionally, the stocks or sectors that pension funds focus on can act as investment signals to other investors, influencing the overall flow of funds in the market.

💡 Analysis of Selling Pressure from Foreign and Individual Investors

• In contrast to the active buying by pension funds, foreign and individual investors have recently shown a selling bias. The selling pressure from foreign investors stems from several factors. Global economic slowdown concerns, dollar strength, and increased geopolitical risks are cited as major causes. Especially in a situation where trade conflicts between the US and China may intensify again, risk-averse tendencies toward emerging markets are strengthening. For individual investors, short-term profit-taking desires along with concerns about economic uncertainty are leading to selling pressure. Also, there are observed movements to recover accumulated losses or readjust portfolios, taking the recent stock price increases as an opportunity. This selling pressure from foreigners and individuals may put downward pressure on the market in the short term, but steady buying by pension funds is offsetting this, contributing to maintaining market balance.

💡 Future Market Outlook and Investment Strategies

• As active buying by pension funds continues, the future direction of the stock market depends on several key variables. First, global economic trends and major countries' monetary policy directions will be important variables. Particularly, the Fed's interest rate policy and inflation trends directly affect market liquidity and investment sentiment. Second, whether domestic companies' performance improves is also a major variable. Given the high export dependency of the Korean economy, the global trade environment and competitiveness of major industries will determine corporate performance. Third, changes in the asset allocation strategy of pension funds should also be noted. If the trend of increasing domestic stock proportions in pension funds continues, it can provide stable buying pressure to the market. Investors should establish strategies by comprehensively considering these variables, and while referencing the investment patterns of pension funds, it is important to approach according to one's own investment goals and risk tolerance. While taking interest in quality value stocks or dividend stocks preferred by pension funds, an attitude of independently analyzing the fundamentals of companies rather than unconditional following is necessary.

4️⃣ In Conclusion

The active net buying by pension funds is acting as a stabilizer for the stock market in an uncertain market environment. They are providing strong buying momentum to the market by injecting large-scale funds of 1.9 trillion won in a month. This can be seen as a strategic judgment pursuing returns from a long-term perspective, recognizing the undervalued value of the domestic stock market, rather than simple market intervention.

In a situation where selling pressure from foreign and individual investors is dominant, the buying pressure from pension funds is defending against sharp market declines and rather becoming a driving force leading a rebound. This is a result reflecting the structural characteristics of the domestic stock market, showing how different investment objectives and time horizons of each investment entity interact in the market.

Investors need to deeply understand the background and meaning of these movements by pension funds, rather than simply using them as indicators to judge market atmosphere. The sectors or stock groups that pension funds focus on are likely to have investment value from a long-term perspective, but judgment according to one's own investment tendencies and goals should precede.

From the policy authorities' perspective, while positively evaluating the market stabilization function of pension funds, a balanced approach is necessary to avoid side effects from excessive market intervention. Investments should be made respecting market functions under the principle of stable operation of citizens' retirement funds, which is the original purpose of pension funds.

Ultimately, the stock market buying by pension funds can be an opportunity to reassess the structural value of the domestic stock market beyond short-term market stimulus measures. If undervalued quality companies recover their fair value and the overall market efficiency is enhanced, it will lead to positive results for both pension funds and general investors. We hope for the spread of an investment culture that views the market from a mid-to-long-term perspective and focuses on the intrinsic value of companies even amidst volatility.