S.Korea pension fund recently selling dollars in forex market, sources say
NPS selling "quite an amount" of dollars in spot market
For either FX hedging or portfolio rebalancing purposes
Pension fund buys most local stocks since March 2020
In talks with central bank to extend currency swap line
By Yena Park and Jihoon Lee
SEOUL, Nov 27 (Reuters) -South Korea's pension fund has been selling dollars in the onshore foreign exchangemarket in recent weeks, capping losses in the won currency as the dollar surges, two sources with knowledge of 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 mover of domestic financial markets.
"The pension fund is selling dollars in the spot market lately," one source said. "It is seen related to tactical FX hedging or portfolio rebalancing."
Another source said the dollar selling this month was likely for portfolio rebalancing purposes.
"The pension fund has to sell if the ratio of foreign assets surpasses the target," the person said. The NPS sold "quite an amount" of dollars, they added, without providing further detail.
The two sources asked not to be identified due to sensitivity of the matter. The NPS, which typically does not reveal its market-moving investment strategies,declined to comment.
The pension fund had until recently been a source of downward pressure on the won for years as it boosted its overseas investments, with estimated outflows of $2-3 billion each month.
Its dollar sellingcomes as the won KRW=KFTC currency is trading around the psychological threshold of 1,400 per dollar, breaching that level earlier this monthfor the first time in two years. The dollar has gained strongly across the board sinceDonald Trump's victory in the U.S. presidential election.
The won, last quoted 1,396.1 per dollar, has weakened 8% so far in 2024, extending losses for the fourth consecutive year.
LOCAL STOCKS UNDERPERFORMING
Earlier this month, the benchmark KOSPI index .KS11 dropped to its lowest level in a year, despite a record-high rally in U.S. stocks. It has fallen 5% so far this year, while the S&P500 has gained 26%.
According to the latest disclosure, the NPS held 13.2% of its assets in domestic stocks and 34.2% in foreign stocks at the end of August, compared with its year-end targets of 15.4% and 33.0%, respectively.
The pension fund, combined with other smaller ones, has bought KOSPI shares worth 1.9 trillion won ($1.36 billion) so farin November, its biggest purchasessince March 2020, according to Korea Exchange data.
The NPS hedges up to 5% of its overseas assets if it sees a need to manage foreign exchange risk. It holds assets worth 1,140.1 trillion won, with 55% of the total abroad. It plans to raise the ratio to 60% by 2026 for higher returns, as part of efforts to delay the depletion of the funds amid a fast-ageing population.
The NPS and the central bank are currently discussing whether they should extend and expand again their $50 billion foreign exchange swap line, which analysts say is a symbolic market stabilising tool and is set to expire at the end of the year.
($1 = 1,395.0500 won)
Reporting by Yena Park and Jihoon Lee; Editing by Lincoln Feast.
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
