NPS gets more leeway to invest in local stocksKorea is putting as many as 60 companies, from Cheil Industries to Samsung C&T, on the National Pension Service’s buying list after clearing the way for the $367 billion fund to boost holdings of local stocks.
Relaxed disclosure requirements that took effect on Aug. 29 will help the NPS increase stakes in some local companies above the 10 percent threshold, the nation’s biggest investor said in an e-mailed response to questions on Aug. 21.
The rules lengthen the timing of public filings for transactions above that level to once a quarter from within five days. The fund said it had positions of 9 percent to 10 percent in 60 stocks as of June.
The NPS gained more scope to raise stakes just as data showed the fifth-biggest economy in the Asia-Pacific region grew at the fastest pace in two years.
Cheil, a chemicals and textiles group, and Samsung C&T, which helped build the world’s tallest building, will be among the first to benefit, said KTB Asset Management. The benchmark Kospi Index will rise 22 percent in 12 months, versus 13 percent for the MSCI Asia Pacific Index, analyst estimates compiled by Bloomberg show.
“The rule change will most likely push the pension fund to buy bigger stakes in large-cap and small-cap companies it already owns,” Heo Pil-seok, the chief executive officer at Midas International Asset Management, which oversees about $6.4 billion, said by phone. “This is poised to boost market trading volumes and drive up investors’ confidence.”
Less frequent disclosures will give the NPS freedom to trade without revealing its strategy to copycat investors who drive up prices, according to the Korea Capital Market Institute and Truston Asset Management. The regulation changes apply only to government-linked investors and are part of South Korea’s Financial Investment Services and Capital Markets Act, which also paved the way for the establishment of new trading venues to rival the Korea Exchange.
The NPS, which declined to give its market outlook or comment on specific stocks, said June 14 it will maintain a target weighting of 20 percent for domestic equities in 2014 and may adjust holdings by as much as 5 percentage points. The fund owns about 6 percent of the nation’s $1.1 trillion stock market, Yoon Young-mok, the head of the NPS’s strategy unit in Seoul, said in a July 29 phone interview.
The pension fund will continue disclosing stakes within five days when they first breach the 10 percent threshold, it said in an e-mailed statement to Bloomberg News Monday. Any subsequent changes will be reported once a quarter in line with the new regulations, NPS said.
“It seems to be going in the right direction to give the pension fund more room to play considering the size of its investments,” said Kim Jae-dong, a money manager at Baring Asset Management Korea, which oversees about $7.4 billion.
Shares in the Kospi are valued at about the same level as their net assets, versus 1.4 times for the regional gauge. That’s within 7 percent of the biggest discount since 2007, according to data compiled by Bloomberg.
Korea’s economy expanded 1.1 percent in the three months through June from the previous quarter, while exports jumped at a quicker-than-estimated 7.7 percent rate in August. Earnings at Korean companies will probably climb 16 percent this year and 15 percent in 2014, according to Barclays.
Growing confidence in the economy helped send yields on the government’s three-year bonds up 9 basis points this week to 2.99 percent, while the won strengthened 1 percent against the dollar. The cost of insuring the nation’s debt with credit default swaps fell 6 basis points to 79.5 as of Wednesday according to CMA.
Foreign investors have added a net $1 billion to their holdings of Korean shares so far this month.
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