Pension funds give Korean stock market a boost

Kospi index bests 1400 points, continues climb

With the benchmark Kospi index rising above 1400 points recently, the outlook is positive that the Korean stock market is gaining upward momentum.

Market observers say pension funds may be the driving vehicle. Institutional investors have sold about 600 billion won (US$618 million) for seven consecutive trading days. While foreign investors have been net buyers of 256.8 billion won since November 14, they have in turn unloaded more than 10 trillion won so far this year. However, pension funds have been net buyers on the market since June, when the Kospi index fell to a 1,200-point level, buying 293.8 billion won in August and 1.28 trillion won in September. In October, they purchased a net 548.9 billion worth of stocks. As of November 17, pension funds were a net buyer of 230.7 billion won so far this month. The funds especially picked up in recent months, buying 1.94 trillion won worth of stocks since September 14, when the Kospi index rose above 1,350-level. At that time, pension funds accounted for 60.2 percent of total buying by institutional investors.

Starting next year, the government plans to increase the stock investment ceiling on three pension funds: a public fund, one for public officials, and one for teachers. The ceiling will be boosted 2.6 times its current rate to 17.26 trillion won from 6.58 trillion won. By the end of this year, the three funds will invest an estimated 16 trillion won into the stock markets. If fresh money flows into the markets, the amount of pension funds in the stock markets may rise to 28 trillion won.

In addition, the possibility is high for universities, hospitals, and religious groups to invest their money in the stock market. With the key interest rate hovering low, these institutions have been concerned about low returns from savings at banks. Related to this, the Korea Securities Industry Association recently agreed to raise a pension fund for universities in Seoul.

Experts say an expanding role by pension funds in the stock market may increase stability in the markets. Daewoo Securities analyst Kim Seong-ju said, "Pension funds, as long-term investors, can increase the stability of supply and demand, compared with other investors." Kim said the Korean stock market's recent momentum was built with pension funds, while foreign investors were net sellers of about 10 trillion won.

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