NPS Fund Shrinks 182 Trillion Won in July as Korean Stocks Slide

South Korea’s National Pension Service (NPS) experienced a 182 trillion won, or about $133.74 billion, drop in its fund assets in July, according to the latest portfolio report. This decline marked the lowest level for the fund since April. The value of equity holdings, which accounted for the majority of the fund, decreased substantially, falling by nearly 10% to 1,684 trillion won at month-end from 1,866 trillion won at the end of June.

The year-to-date investment return of the NPS plummeted to 14.84% from a robust 27.22% in the previous period. The largest contributor to the decline was domestic equities, whose valuation plummeted by 124 trillion won to 419 trillion won, falling alongside a sharp decline in the KOSPI index from around 8,470 to 6,590. The year-to-date return on domestic equities fell significantly to 60.11% from 107.37%, a drop of over 47 percentage points.

Overseas equity holdings also suffered a decline, decreasing by 37 trillion won to 624 trillion won from 661 trillion won. This contraction in the fund’s overall assets was further exacerbated by reduced bond valuations due to rising interest rates and fluctuations in the won-denominated value of overseas assets. Bond investments faced pressure as rising interest rates and inflation concerns affected valuations, while major central banks tightened monetary policy.

Alternative investments generated a modest return of 4.09%, encompassing interest and dividend income. The NPS cited heightened market volatility, uncertainty stemming from Middle Eastern conflicts, and concerns about the sustainability of AI investments as factors contributing to the performance dip. Despite these challenges, strong earnings from semiconductor companies helped domestic equities retain strong year-to-date returns, contributing to the fund’s overall performance.

The KOSPI index had risen by 56.51% year-to-date, while the NPS’s domestic equity portfolio delivered a 60.11% return, outperforming the index by 3.60 percentage points. Moving forward, market volatility and interest rate movements are anticipated to continue influencing the fund’s investment performance.