South Korea’s stock market has once again been “shattered by a little essay”: the National Pension Service has been exposed to launch a rebalancing in July, which could lead to the sale of up to 740,000,000,000,000 won worth of domestic stocks.

Korea's National Pension Service (NPS) is expected to resume rebalancing of domestic stocks, sparking renewed concerns about the capital flow of the Korean stock market.

According to a report by The Korea Herald on June 30, as the KOSPI has recently experienced a sustained surge, the proportion of Korean stocks held by the NPS has significantly exceeded its annual allocation target. Multiple securities firms predict that the fund will begin gradually reducing its holdings of Korean stocks starting in July, with the worst-case scenario seeing sales of up to 74.4 trillion won (approximately $48 billion).

Affected by this news, the KOSPI opened 1.4% higher on Wednesday but then quickly plunged, at one point falling 4% during the session, before ultimately closing down over 2%.

Subsequently, officials rushed to clarify. On July 1, NPS Chairman Kim Sung-joo published an article titled "The Truth About NPS Rebalancing and the 74 Trillion Won Selling Bomb," stating that the so-called "74.4 trillion won sell-off" circulating in the market is an "unfounded claim." As a public pension fund, the NPS will adopt a gradual rebalancing strategy, minimizing market impact by limiting monthly and single-day adjustment sizes.

It wasn't just this "rumor" that dragged down Korean stocks. A previous article from Wall Street News mentioned that a rumor circulating online claimed "Seoul has sent letters to Samsung Electronics and SK Hynix requesting the establishment of a government-led think tank for profit sharing," which was also quickly clarified by officials.

Analysts believe that the NPS's rebalancing itself is a routine asset allocation operation, but given its management of assets exceeding $1.2 trillion, making it the world's third-largest pension fund, any of its buying or selling actions will be closely watched by the market. With Korean stocks already at elevated valuations and market sentiment fragile, changes in capital flows have become a focus for investors.

Korean stocks rose too quickly, and NPS's position exceeded compliance limits

According to the NPS's current asset allocation guidelines, the target allocation for domestic Korean stocks in 2026 is 20.8%, with a permissible fluctuation range of ±8 percentage points, meaning an upper limit of 28.8%.

However, due to the recent rapid rise in Korean stocks, the market generally estimates that the NPS's domestic stock position has risen to about 30%, clearly exceeding the compliance cap.

The NPS implements a disciplined rebalancing mechanism. When the weight of a certain asset class deviates from the target range, it will actively sell over-allocated assets and buy under-allocated ones to return to the established allocation structure, controlling overall portfolio risk.

To avoid short-term market impact, the NPS previously postponed rebalancing operations until the end of June. With the arrival of July, a new round of position adjustments is expected to officially begin.

Up to 74.4 trillion won may be sold, with large discrepancies in institutional estimates

Since the NPS has not disclosed specific execution plans, estimates of potential sell-off volumes vary widely among institutions.

Shinyoung Securities estimates: If the KOSPI rises back to 9000 points, the NPS could sell up to 74.4 trillion won in Korean stocks; if the index remains around 8500 points, the sell-off volume would be approximately 14.7 trillion to 51.2 trillion won.

Daishin Securities predicts that to bring the domestic stock allocation back to the target range, the NPS would need to sell about 20 trillion to 57 trillion won in stocks.

Although the market repeatedly mentions a "74 trillion won sell-off," most analysts believe that the likelihood of a one-time concentrated sell-off is extremely low. Shinyoung Securities analyst Cho Yong-gu expects that the NPS is likely to further compress annual, monthly, and daily rebalancing limits, completing the reduction gradually over a longer period, and does not rule out the possibility of raising the annual domestic stock allocation target in the future.

Korea's NPS denies the "74 trillion won sell-off" rumor, clarifies it will stabilize the market in stages

In response to growing market concerns, NPS Chairman Kim Sung-joo has publicly stated that the NPS, as a public pension fund, will not concentrate its asset sales like a private equity fund pursuing maximum profits, but will prioritize market stability.

According to a report by South Korea's Maeil Business Newspaper, Kim Sung-joo said that the so-called "74 trillion won sell-off" is an overinterpretation by the market.

Meanwhile, South Korean media disclosed that the NPS has adjusted its rebalancing execution rules to control market impact by lowering monthly and daily adjustment ranges. Specifically, the maximum monthly rebalancing range is limited to 0.25 percentage points, and a cap has been set on daily sell-off volumes to further reduce the risk of concentrated selling.

The market generally expects that this round of rebalancing is more likely to be completed in stages over several months or even longer, rather than forming a one-time huge selling pressure.

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