Korean stocks’ 74 trillion “sell-off bomb” fizzles: National Pension Fund unexpectedly turned net buyer in July, with significant increase in SK Hynix holdings

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In July, South Korea’s National Pension Fund unexpectedly recorded its first monthly net purchase of domestic stocks this year; the large-scale sell-off feared by the market did not materialize, and SK Hynix became the biggest beneficiary.

According to data from the Korea Exchange, including the National Pension, pension funds made a net purchase of 68.4 billion KRW in the KOSPI market from July 1 to 24, marking the first monthly net purchase this year. Meanwhile, SK Hynix saw a net purchase of 425.8 billion KRW, ranking first in pension fund increases for the second consecutive month.

The market previously widely worried that, with the rebalancing exemption measure for the National Pension's domestic stock assets ratio ending last month, there could be a massive selling pressure of up to 74 trillion KRW. However, the actual capital flow was clearly different from expectations, and this change is providing important emotional support to the recently pressured Korean stock market.

Behind the Net Purchase: Rebalancing Pressure Naturally Dissipated Due to Stock Price Declines

Pension funds continued to be net sellers in the first half of this year, with monthly net sales as follows:

January: 1.8911 trillion KRW, February: 681.6 billion KRW, March: 764.8 billion KRW, April: 896.1 billion KRW, May: 2.1617 trillion KRW, June: 2.337 trillion KRW, showing an expanding trend month by month.

Since July, there has been a significant change in capital flow. In the first half, pension funds were net sellers on more than half of the trading days, while this month up to the 24th, there have been only 6 net selling days.

Securities industry insiders analyze that the recent KOSPI correction led to a decline in the assessed value of domestic stocks held by the National Pension, resulting in a lower proportion of domestic stocks to total assets, objectively reducing the need for further selling. “The index correction may have provided an opportunity to buy quality stocks at lower prices,” said a securities industry source.

It is worth noting that there are still trading days remaining at the end of the month, so it is not ruled out that it could ultimately turn into a net sale, but the general market consensus is that the probability of large-scale net selling as seen in the first half has dropped significantly.

Buying Concentrated in Semiconductors and Energy, Samsung Group Saw Heavy Selling

At the stock level, the direction of pension fund trading this month shows distinct structural characteristics.

On the buying side, SK Hynix topped the list with a net purchase of 425.8 billion KRW, SK Innovation with a net purchase of 224.7 billion KRW, S-OIL with 174.4 billion KRW, DB Insurance with 109.4 billion KRW, Celltrion with 95.3 billion KRW, and Korean Air with 89.9 billion KRW. Semiconductor and refining/energy sectors were the main directions for capital inflows.

On the selling side, SK Square saw a net sale of 575.7 billion KRW, making it the stock with the largest net reduction. Samsung Electro-Mechanics had a net sale of 313.6 billion KRW, Samsung Life Insurance had a net sale of 123.8 billion KRW, LG Electronics had a net sale of 111.9 billion KRW, and Samsung Electronics saw a net sale of 111.5 billion KRW. Several Samsung Group subsidiaries appeared prominently on the net selling list.

Authorities Aim to Stabilize Expectations with Official Statements

In response to concerns about large-scale sell-offs, South Korean authorities have made several public statements.

Kim Sung-joo, Chairman of the National Pension Service, previously made it clear that there would not be large-scale sales in the short term. Minister of Health and Welfare Jeong Eun-kyung also stated that the process of adjusting asset allocation ratios would be closely monitored to ensure the impact on the domestic stock market is minimized.

However, analysts have pointed out potential risks: continued divestment by foreign investors and slowing new buying by individual investors could weaken the market’s buying foundation. If the Korean stock market’s overall ability to absorb is insufficient, changes in the National Pension’s buying and selling direction may further amplify market volatility.

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