The South Korean National Pension Service (NPS) is expected to resume rebalancing operations for domestic stocks, sparking renewed market concerns over liquidity in the South Korean stock market.

According to a June 30th report, with the recent sharp rally in the KOSPI, the proportion of Korean stocks held by the NPS has significantly exceeded its annual allocation target. Multiple securities firms anticipate the fund will begin gradually reducing its holdings of Korean stocks starting in July, with the most pessimistic scenario projecting a sell-off of up to 74.4 trillion won (approximately $48 billion).

Influenced by this news, the KOSPI opened 1.4% higher on Wednesday but quickly reversed gains, plunging as much as 4% intraday before closing down over 2%.

Subsequently, officials urgently stepped in to clarify. NPS Chairman Kim Sung-joo published an article on July 1st titled "The Truth About NPS Rebalancing and the 74 Trillion Won Sell-off Bomb," stating that the widely circulated notion of a "74.4 trillion won selling wave" was "unfounded." He emphasized that as a public pension fund, the NPS would adopt a gradual rebalancing strategy, limiting the scale of monthly and daily adjustments to minimize market impact.

This was not the only piece of unverified information impacting the market. A recent online rumor claimed that "Seoul had sent letters to Samsung Electronics Co Ltd and SK Hynix Inc requesting the establishment of a government-led think tank related to profit-sharing," which was also promptly debunked by officials.

Analysts believe that while NPS rebalancing is a routine asset allocation operation, its actions are highly scrutinized by the market due to its managed assets exceeding $1.2 trillion, making it the world's third-largest pension fund. Against the backdrop of elevated Korean stock valuations and fragile market sentiment, changes in liquidity have become a key focus for investors.

Rapid Stock Gains Push NPS Holdings Beyond Compliance Limits

According to the NPS's current asset allocation guidelines, the target allocation for domestic Korean stocks by 2026 is 20.8%, with an allowable fluctuation range of ±8 percentage points, meaning an upper limit of 28.8%.

However, influenced by the recent rapid rise in Korean stocks, market consensus estimates that the NPS's domestic stock holdings have risen to approximately 30%, clearly exceeding the compliance ceiling.

The NPS implements a disciplined rebalancing mechanism. When the weight of a particular asset class deviates from the target range, it proactively sells over-allocated assets and buys under-allocated assets to return to the established allocation structure and control overall portfolio risk.

To avoid causing short-term market shocks, the NPS previously postponed its rebalancing operations until the end of June. With July's arrival, a new round of portfolio adjustments is expected to officially commence.

Potential Sell-off Up to 74.4 Trillion Won, with Significant Discrepancies in Institutional Estimates

Since the NPS has not disclosed specific execution plans, various institutions have vastly different assessments of the potential selling scale.

Shinyoung Securities estimates that if the KOSPI rises back to 9,000 points, the NPS could potentially sell up to 74.4 trillion won worth of Korean stocks. If the index remains around 8,500 points, the selling scale would be approximately 14.7 trillion to 51.2 trillion won.

Daishin Securities forecasts that to bring domestic stock allocations back within the target range, the NPS would need to sell about 20 trillion to 57 trillion won worth of stocks.

Although the market continues to discuss the "74 trillion won selling wave," most analysts believe the likelihood of a one-time, concentrated sell-off is extremely low. Shinyoung Securities analyst Cho Yong-gu expects the NPS will likely further compress its annual, monthly, and daily rebalancing quotas, completing the reduction over a longer period, and does not rule out the possibility of the NPS raising its annual allocation target for domestic stocks in the future.

South Korea's NPS Denies "74 Trillion Won Sell-off" Rumor, Confirms Phased Market-Stabilizing Approach

In response to escalating market concerns, NPS Chairman Kim Sung-joo has publicly stated that the NPS, as a public pension fund, will not engage in concentrated asset sales like profit-maximizing private equity funds, but will prioritize market stability.

According to reports, Kim stated that the so-called "74 trillion won sell-off" is an over-interpretation by the market.

Meanwhile, South Korean media has disclosed that the NPS has adjusted its rebalancing execution rules to control market impact by reducing the scale of monthly and daily adjustments. Specifically, the maximum monthly rebalancing adjustment is capped at 0.25 percentage points, and daily selling volumes also have upper limits, further reducing the risk of concentrated selling.

The market widely expects that this round of rebalancing is more likely to be completed in phases over several months or even longer, rather than creating a one-time massive selling pressure.