Seoul, South Korea – South Korea’s National Pension Service (NPS), known as the world’s third-largest pension fund, is gearing up to inject up to 11 trillion won ($8.2 billion) into undervalued Korean stocks. This move comes as part of a broader initiative by the government to elevate the country’s sluggish stock market.
According to sources within the investment banking industry, discussions are underway between the Korea Exchange (KRX) and NPS to establish a new index that will track undervalued local stocks. This initiative aligns with the government’s goal to enhance the corporate value of these underperforming stocks.
The anticipated index, tentatively named the Korea Value-up Index, is anticipated to become a key benchmark for NPS’s external asset managers when making equity investments. NPS commonly uses benchmark indices to assess the performance of its outsourced domestic equity investments.
At present, NPS either directly invests in local equities or assigns external asset managers to oversee assets totaling 75.4 trillion won across various tiers of equities. As of December 2023, NPS’s assets under management had reached a staggering 1,036 trillion won.
In response to the Korean government’s recent announcement of guidelines for a corporate value-up program designed to amplify listed firms’ value, investors swiftly jettisoned undervalued stocks with a price-to-book ratio (PBR) of less than 1. Despite initial excitement around the program, investors seemed dissatisfied with the guidelines.
To align with the government’s efforts to revive the local stock market, NPS is poised to utilize the Korea Value-up Index as a benchmark index. By potentially reallocating a portion of their assets currently tied to another benchmark index, NPS could potentially invest up to 11 trillion won in undervalued Korean stocks through the new index.
This partnership between NPS and KRX is not the first instance of collaboration in developing a benchmark index. In 2021, they jointly created the NPS-KR 250 Index, which guides the pension fund’s direct equity investments with constituent stocks listed on the Kospi and the Kosdaq.
The Korean government’s commitment to revitalizing the local stock market, particularly focusing on low PBR stocks through the corporate value-up program, reflects its determination to improve market performance. This initiative draws inspiration from Japan’s successful capital market revival program initiated by the former Abe Shinzo administration in the early 2010s.
Comparatively, Japan’s Government Pension Investment Fund (GPIF) has significantly increased its investment in Japanese stocks, showcasing the impact of strategic investment decisions on the market. This strategic shift resulted in a doubled asset allocation into local stocks, indicating the potential success of such endeavors.