South Korea’s stock market was once again hit hard by “small essays”: National Pension Fund reportedly set to start rebalancing in July, possibly selling up to 74 trillion won worth of domestic stocks.

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South Korea’s National Pension Service (NPS) is expected to resume domestic stock rebalancing operations, sparking a new wave of market concerns about capital flows in the Korean stock market.

According to The Korea Herald on June 30, as KOSPI has surged recently, the proportion of Korean stocks held by the NPS has significantly exceeded its annual allocation target. Several brokerages predict the fund will gradually reduce its holdings of Korean stocks starting in July, with the most pessimistic scenario seeing sales reach up to KRW 74.4 trillion (about USD 48 billion).

Affected by this news, KOSPI opened 1.4% higher on Wednesday but quickly plummeted, dropping as much as 4% intraday and ultimately closing down more than 2%.

Soon after, officials urgently clarified the situation. NPS Chairman Kim Sung-joo published an article on July 1 titled “The Truth About NPS Rebalancing and the KRW 74 Trillion Sell-Off Bomb,” claimingthat the market rumor about a “KRW 74.4 trillion sell-off” is “unfounded.” As a public pension fund, NPS will adopt a gradual rebalancing strategy, using measures like limiting monthly and daily adjustment sizes to minimize market impact.

This wasn’t the only “story” that dragged down Korean stocks. Wallstreetcn previously reported that rumors circulated online claiming “Seoul has sent letters to Samsung Electronics and SK Hynix, asking them to establish a government-led profit-sharing think tank.” This rumor was also quickly refuted by officials.

Analysts believe NPS rebalancing is a standard asset allocation operation, but due to its asset size of over USD 1.2 trillion, making it the world's third-largest pension fund, any of its buying or selling actions face close market scrutiny. With KOSPI valuations at elevated levels and fragile market sentiment, changes in capital flows have become the focus for investors.

Korean stock surges push NPS holdings beyond compliance range

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

However, due to the rapid rise in Korean stocks in recent days, market estimates suggest that NPS domestic stock holdings have risen to around 30%, clearly above the compliance limit.

NPS enforces a disciplined rebalancing mechanism, and when any asset weight deviates from the target range, it will proactively sell overweight assets and buy underweight assets to return to the set allocation structure and control overall portfolio risk.

To avoid short-term shocks to the market, NPS previously delayed rebalancing operations until the end of June. With the arrival of July, a new round of portfolio adjustments is expected to formally begin.

Potential sales of up to KRW 74.4 trillion, with substantial discrepancies in institutional estimates

Since NPS has not disclosed specific execution plans, different institutions have varied views on the possible scale of selling.

Shinyoung Securities estimates: If KOSPI rises again to 9000 points, NPS may sell up to KRW 74.4 trillion in Korean stocks; if the index stays around 8500 points, sales may range from KRW 14.7 trillion to KRW 51.2 trillion.

Daishin Securities predicts that, to bring domestic stock allocations back to target ranges, NPS needs to sell about KRW 20 trillion to KRW 57 trillion in stocks.

Despite persistent rumors of a “KRW 74 trillion sell-off,” most analysts believe the likelihood of a one-time, concentrated sale is extremely low. Shinyoung Securities analyst Cho Yong-gu expects NPS will further limit annual, monthly, and daily rebalancing quotas, gradually reducing holdings over a longer period and possibly raising annual domestic stock allocation targets in the future.

NPS denies “KRW 74 trillion sell-off” rumors, confirms phased, stable operations

Facing ongoing market concerns, NPS Chairman Kim Sung-joo has publicly responded, stating NPS, as a public pension fund, will not concentrate asset sales like private equity funds that aim for maximum profits, but will prioritize market stability.

According to Korea's Daily Economic, Kim Sung-joo said the so-called “KRW 74 trillion sell-off” is market overreaction.

Meanwhile, Korean media reported that NPS has adjusted its rebalancing execution rules, controlling market impact by lowering monthly and daily adjustment limits. The monthly rebalancing limit is capped at 0.25 percentage points, and daily selling size also has a set upper limit, further reducing the risk of concentrated sales.

The market generally expects this round of rebalancing will most likely be completed in phases over several months or even longer, rather than a single large-scale sell-off.

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