South Korea’s National Pension Service (NPS), one of the world’s largest pension funds, has significantly raised its target allocation to domestic equities at the end of 2026 from 14.9% to 20.8%. As of February this year, domestic equities already accounted for approximately 24.5% of the fund’s portfolio. This means the NPS will not need to conduct large-scale sales of domestic equities to rebalance its portfolio, helping to alleviate downward pressure on the KOSPI’s upward momentum.
South Korea's National Pension Service has significantly raised its target allocation to domestic equities, a move aimed at addressing the unusually strong rally in the KOSPI index this year—which has pushed the fund’s domestic equity holdings far above its original upper limit, sparking market concerns about forced selling.
According to a statement released by South Korea’s Ministry of Health and Welfare on Thursday following a meeting of the fund’s management committee, the National Pension Service has substantially increased its target allocation to domestic equities at the end of 2026 from 14.9%, announced in January this year, to 20.8%, while reducing its target allocation to overseas equities from 37.2% to 34.7%. As of February 2026, the NPS managed assets totaling approximately KRW 1,610.4 trillion (about USD 1.07 trillion), making it one of the world’s largest pension funds.
This adjustment has direct market implications: raising the domestic equity target means the National Pension Service will not need to sell large amounts of domestic equities to rebalance its portfolio, thereby helping to ease downward pressure on the KOSPI’s rally. Meanwhile, the reduced target for overseas equities could also lower demand for the U.S. dollar, offering some support to the Korean won.
KOSPI Surges Sharply, Holdings Significantly Exceed Target Allocation
$Korea Index (.kospi.US)$The index has gained more than 94% year-to-date. According to data from the National Pension Service’s official website, as of February this year, domestic equities already comprised approximately 24.5% of the fund’s portfolio—far exceeding the then-target allocation of 14.9%. Since the end of February, the KOSPI has risen further by about 31%, implying that the actual domestic equity weighting may have climbed even higher.
The persistent overshooting of the target allocation has drawn intense market attention to whether the National Pension Service might be forced to sell domestic equities to rebalance its portfolio—a potential selling pressure that has been a key concern for investors.
Committee: Balancing Profitability, Stability, and Market Impact
The management committee stated that the decision was made after a comprehensive assessment of market conditions since January, the fund’s profitability and stability principles, its impact on financial markets, and expert opinions. The move aims to recalibrate the target weights for various asset classes by the end of 2026 and provide direction for future asset allocation.
The committee noted that the increased target for domestic equities reflects both an assessment of potential structural shifts in the market and the reality of the fund’s rising actual holdings in domestic stocks. The adjustment is intended to enhance the fund’s long-term profitability and stability while mitigating the market impact of portfolio rebalancing. The National Pension Service indicated that the revised domestic allocation target will take effect formally at the end of June.
Exchange Rate Effect: May Provide Additional Support to the Korean Won
The downward adjustment of overseas equity allocation targets may have the incidental effect of reducing demand for U.S. dollars, thereby alleviating depreciation pressure on the Korean won. The won has been under persistent pressure this year and recently breached the 1,500-per-dollar mark.
According to Bloomberg, the National Pension Service and the Bank of Korea extended their cooperative arrangement in December last year regarding flexible management of strategic foreign exchange hedging to help stabilize the exchange rate. Analysts view the latest further reduction in overseas equity targets and increased allocation to domestic equities as another signal of support for the won, aligning with authorities’ policy stance aimed at curbing local investors’ enthusiasm for overseas investments and controlling U.S. dollar demand.
Editor/melody