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S.Korea’s Pension Fund to Buy More Domestic Stocks in 2013

South Korea’s Pension Fund to Buy More Domestic Stocks in 2013
National Pension’s overseas investments include stakes in Colonial Pipeline Co. in the U.S., Berlin’s Sony Center, London’s Gatwick Airport, and HSBC’s London headquarters. Photographer: Michele Tantussi/Bloomberg

South Korea’s National Pension Service plans to spend 6.6 trillion won ($5.7 billion) buying more of the nation’s stocks next year, signaling its support for equities amid Europe’s worsening debt crisis.

The nation’s biggest investor will increase the weighting of domestic stocks in its holdings to 20 percent of assets in 2013, the Ministry of Health and Welfare, which oversees the fund, said in an e-mailed statement today. That compares with its 2012 target of 19.3 percent. The fund aims to pare its domestic bond weighting to 56.1 percent of assets in 2013, less than the 59.3 percent it targeted for this year.

The pension fund, which had about $300 billion of assets at the end of March, is boosting investments in equities even as investors favored less risky assets at a time of increasing concerns over Europe and the strength of the global economy. An index of South Korean government bonds compiled by HSBC Holdings Plc returned 2.59 percent this year through yesterday, outpacing a 1.8 percent gain in the benchmark Kospi index of stocks.

“The higher weighting in stocks is of course positive given that the fund’s investment is serving as a good support to the market amid ongoing volatility in financial markets stemming from Europe,” Kim Jae Dong, head of equities at SEI Asset Korea Co., which manages about $5.3 billion in assets, said by phone today. “Compared with other overseas pensions, NPS’s stock weighting is still low and I think it’s taking a right approach to continue diversifying its assets.”

Europe Turmoil

The Kospi slumped 7 percent last month, the most since August, amid growing concern the debt crisis in Europe will hurt overseas shipments. The European Union accounts for 10 percent of South Korean exports, government data show. The Group of 20 nations will meet in Mexico on June 18-19 to discuss the crisis, which deepened after Moody’s Investors Service downgraded Spain and Cyprus’s credit ratings.

The International Monetary Fund this week lowered its 2012 forecast for South Korea’s economic growth to 3.25 percent from 3.5 percent, citing “substantial” uncertainty due to Europe’s deepening debt turmoil. The Bank of Korea kept borrowing costs unchanged for a 12th straight month on June 8.

The Kospi closed 0.7 percent higher at 1,871.48 today, paring its slump in the past three months to 8.5 percent.

The gauge trades for 9.6 times estimated profit, below its four-year average of 10.9 times, according to data compiled by Bloomberg. That compares with a multiple of 9.9 for the MSCI Emerging Markets Index and 8.4 for the MSCI BRIC Index, which tracks Brazil, Russia, India and China.

Overseas Investments

The National Pension Service plans to have 9.3 percent of assets in overseas equities next year, the welfare ministry said, up from the 8.1 percent targeted for 2012. The fund’s size is expected to grow to 430 trillion won by the end of 2013 from 365 trillion won as of March.

The service aims to have 4 percent of assets in overseas bonds next year, the ministry said, down from 4.1 percent in 2012. The pension fund plans to raise its weighting of so-called alternative investments to 10.6 percent of assets in 2013, from its target this year of 9.2 percent.

“We will keep our management direction of diversifying assets and expanding overseas investments,” according to today’s statement from the welfare ministry.

National Pension’s overseas investments include stakes in Colonial Pipeline Co. in the U.S., Berlin’s Sony Center, London’s Gatwick Airport, and HSBC’s London headquarters. The fund was set up in 1988 to manage pensions for private-sector employees and the self-employed.

-- Editors: Darren Boey, Richard Frost

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