NPS bullish on finance, builders

The National Pension Service, the biggest institutional investor in the local market, boosted its holdings of financial and construction company shares in the first three months of the year.

Of the 560 trillion won ($437 billion) in assets that the NPS manages, it invests 100 trillion won in the stock market.

According to financial information provider FnGuide, there were 280 stocks in which the NPS owns more than 5 percent as of the first quarter. Under capital market legislation, investors that own more than 5 percent stakes in a company must publicly disclose the investment.

Between January and March, 98 companies were added to the list for the NPS.

Especially this year the pension service institute has increased its holdings in financial companies and construction firms.

Compared to the end of last year, the NPS’s stake in the nation’s largest brokerage firm, Mirae Asset Daewoo Securities, increased from 6.54 percent to 8.61 percent. During the same period the NPS’ stake in Meritz Securities rose from 7.99 percent to 9.09 percent while its stake in NH Investment & Securities went from 6.72 percent to 7.84 percent.

Since the end of last year, financial shares have become favorites among institutional investors. They were undervalued and they are expected to benefit from rising interest rates as begun by the U.S. Federal Reserve.

In March, the U.S. central bank raised its interest rates 0.25 percentage points to a range between 0.75 percent and 1 percent citing economic progress including improvement in jobs and inflation.

“We have seen the economy progress over the last several months in exactly the way we anticipated,” Janet Yellen, the Fed Chairwoman said during a press conference in March. “We have some confidence in the path the economy is on.”

It was the second hike in three month.

Further rate hikes are expected this year especially as the Fed said business sentiment has improved “somewhat.” The market is already expecting the next hike in June.

Financial shares have benefitted.

From the end of last year to April 7, Mirae Asset Daewoo’s shares surged 20.6 percent while Meritz Securities’ shares rose 7.4 percent. NH Investment & Securities shares jumped 25.4 percent.

Among construction shares, the NPS increased its stake in HanmiGlobal from 8.15 percent at the end of last year to 11.73 percent. Its stake in GS E&C rose from 7.61 percent to 9.91 percent. For Samsung Engineering the increase was from 6.04 percent to 8.17 percent and for Hyundai E&C from 11.21 percent to 12.05 percent.

“Since last December, construction orders from the Middle East, including Bahrain and Oman, have been increasing, especially for petroleum plants, while the liquefied natural gas (LNG) market has seen sharp growth largely thanks to China’s power distribution plan,” said Chae Sang-wook, an analyst at Hana Financial Investment.

In fact, HanmiGlobal shares rose 20.1 percent from the beginning of this year to last Friday.

The NPS has also been boosting its holdings in the hotel and leisure industries. It increased its stake in Mode Tour 2.9 percentage points and in Hana Tour 1.3 percentage points.

Those industries are heavily exposed to China’s economic retaliations for the deployment of a U.S. missile defense system in South Korea. Nonetheless, Mode Tour’s shares rose 40.6 percent compared to the beginning of this year while Hana Tour’s rose 25.9 percent.

The NPS has also increased its stake in Samsung Electro-Mechanics.

However, the pension service institute reduced its holdings in pharmaceutical companies.

The NPS’ stake in Daebong LS dropped from 7.2 percent to 5.07 percent while its stake in Boryung Pharmaceutical shrunk from 5.05 percent to less than 5 percent.

The influence of the NPS in the local market is huge and a company’s shares rise if the NPS increases its investment. They fall when the NPS sells.

But market analysts warn retail investors against making investment decisions based on where the NPS invests.

“Instead of buying stocks in a single stroke, the NPS usually buys shares over the course of several months,” said Lee Hyo-seop, an analyst at Korea Capital Market Institute. “[Investors] should be careful about blindly following NPS investment decisions.”

BY LEE SAENURI, LEE HO-JEONG [lee.hojeong@joongang.co.kr]