[Alpha Biz= Paul Lee] South Korea’s National Pension Service (NPS) stepped up purchases of overseas equities late last year despite a sharp depreciation of the won, raising questions about policy coordination with monetary and foreign exchange authorities.

According to data released by the Bank of Korea, overseas equity investment by the “general government” category—largely representing the NPS—totaled $4.09 billion in December, up 2.8% from the previous month. By contrast, overseas stock purchases by individuals, categorized as “non-financial corporations and others,” plunged nearly 62% over the same period.

As a result, the NPS’s share of total resident overseas equity investment rose from 31.7% in November to 34.5% in December, even as the won-dollar exchange rate hovered near post–Asian financial crisis highs, averaging around KRW 1,467 per dollar and briefly spiking to nearly KRW 1,485.

The aggressive buying came despite repeated warnings from the central bank that large-scale overseas investment by the pension fund could amplify dollar demand and fuel further currency weakness. Rhee Chang-yong said in November that the NPS had grown too large for its overseas investment decisions to ignore macroeconomic effects, later citing the fund as a key driver behind recent won depreciation.

While authorities are discussing ways to adjust the pension fund’s currency hedging and diversify dollar funding, the NPS has signaled it will maintain its overseas investment strategy. NPS Chairman Kim Sung-joo said this month that expanding foreign investments remains essential to sustaining the pension system and rejected claims that the fund’s actions were a primary cause of the weaker won.

The divergence highlights growing tension between exchange-rate stabilization efforts and the long-term return objectives of the world’s third-largest public pension fund, as currency volatility remains elevated despite sizable interventions by the central bank.

 

 

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