South Korea's pension fund has been selling dollars on the foreign exchange market in recent weeks, to limit losses on the won as the dollar soars, two sources familiar with the matter told Reuters .
The National Pension Service (NPS), the world's third largest public pension fund with more than $810 billion in assets, is a major player in the nation's financial markets.
“The pension fund has been selling dollars in the spot market lately,” a source said. “This is believed to be a tactical operation to hedge currency risk or rebalance the portfolio.
Another source said the dollar sale this month was likely intended to rebalance the portfolio.
“The pension fund must sell if the foreign assets ratio exceeds the set target,” this person said. The NPS sold “a fairly significant amount” of dollars, it was added, without giving further details.
Both sources asked not to be identified due to the sensitivity of the matter. The NPS, which generally does not reveal its market-based investment strategies, declined to comment.
Until recently, the pension fund had been a source of downward pressure on the won for years as it increased its overseas investments, with outflows estimated at $2-3 billion each month. .
This sale of dollars comes as the won trades around the psychological threshold of 1,400 to the dollar, a level it crossed at the beginning of the month for the first time in two years. The dollar has risen sharply across the board since Donald Trump's victory in the US presidential election.
The won, last quoted at 1,396.1 per dollar, has weakened 8% so far in 2024, extending its losses for the fourth consecutive year.
UNDERPERFORMING LOCAL ACTIONS
Earlier this month, the benchmark KOSPI index fell to its lowest level in a year, despite a record rise in U.S. stocks. It has fallen 5% since the start of the year, while the S&P500 index has gained 26%.
According to the latest published information, the NPS held 13.2% of its assets in domestic stocks and 34.2% in foreign stocks at the end of August, while its year-end targets were 15.4 % and 33.0%, respectively.
The pension fund, combined with other smaller ones, has purchased KOSPI shares worth 1.9 trillion won ($1.36 billion) so far in November, its largest purchases since March 2020, according to data from the Korea Stock Exchange.
The NPS hedges up to 5% of its overseas assets if it deems it necessary to manage foreign exchange risk. It has assets worth 1,140.1 trillion won, 55 percent of which is overseas. It plans to increase this ratio to 60% by 2026 to achieve higher returns, as part of efforts to delay the depletion of funds amid a rapidly aging population.
The NPS and the central bank are currently discussing whether to extend and further expand their $50 billion currency swap line, which analysts say is a symbolic market stabilization tool and is set to expire at the end of the year.
($1 = 1,395.0500 won)
