Domestic stocks will account for 17 percent of its assets by the end of 2009, down from an earlier target of 20.3 percent, the fund said today in an e-mailed statement. Bonds will make up 69.3 percent of assets next year, from 60.4 percent planned earlier, according to the statement.
``It's quite natural for the fund to revise its investment plan given the current and expected market conditions,'' said Lee Jin Woo, a fund manager at KTB Asset Management Co. in Seoul, which oversees the equivalent of $7 billion in assets. ``South Korean markets will see continued volatility in the first six months, during which I'm planning to reduce our stock holdings before the upward trend in the late second half.''
Public pension funds have been reporting declining returns as a global equities rout triggered by the credit crunch led to losses. The California Public Employees' Retirement System, the largest U.S. public pension fund, posted its worst performance in six years in the year ended June, while Norway's Government Pension Fund - Global reported its biggest quarterly drop since its inception in 1996.
Instability to Persist
``The fund had to revise its 2009 investment plan as instability in global markets is expected to persist,'' National Pension said in a statement. ``We also needed to respond flexibly to unstable market conditions both at home and overseas.''
The MSCI Asia Pacific Index has slumped 45 percent in 2008, the worst annual performance in its two-decade history, as the most severe financial crisis since the Great Depression dragged Japan, the U.S. and Europe into recessions this year. Losses and writedowns tied to the collapse of the U.S. subprime-mortgage market exceeded $1 trillion this month.
The pension fund's purchase of South Korean stocks this year helped trim the benchmark Kospi index's declines after overseas investors sold a net 33.8 trillion won of shares. National Pension was among the net buyers of 9.3 trillion won in Kospi index shares this year, according to stock exchange data.
``Still, I don't see a big impact on the stock market because the fund hasn't invested fully according to its targets and it can also change its weightings once conditions improve,'' KTB Asset's Lee said.
Kospi, Won Decline
The state-run pension fund held 5.7 percent of KT Corp., the biggest South Korean telecommunications company, among its holdings in domestic stocks, as of November. It also has 5.3 percent of Samsung C&T Corp., the second-biggest South Korean construction company, as of September, according to data compiled by Bloomberg.
Speculation that South Korean companies will face difficulty refinancing debt has dragged the Kospi down by 41 percent this year, set for its worst annual performance since 2000 when the technology bubble burst. The drop will also be the first for the measure since 2002.
The won has lost 28 percent, the worst-performing Asian currency, as foreign investors sold shares. The pension fund posted a 4.1 percent drop on its investments in the first 10 months, according to its Web site.
Valuations for the stock-market gauge have fallen to 10.6 times reported earnings, almost half of their peak in November 2007. Still, it remains Asia Pacific's fourth-most expensive market, after China, Japan and New Zealand. The Kospi fell 2.2 percent to 1,092.90 as of 10:13 a.m. in Seoul.
Bottom
``Korean equities are likely to hit the bottom in the first half of next year because of the global economic slump and deteriorating corporate profits,'' the fund said. ``After that, stock markets will rise moderately as the ongoing aggressive interest rate cuts and stimulus packages across the globe will have a gradual impact.''
Macquarie Group Ltd. expects the Kospi will rise to 1,400 by the end of next year, advising investors to be ``overweight'' on the nation's equities from the second quarter of 2009. Morgan Stanley set its 12-month target for the stock gauge at 1,100, saying it remains ``cautious'' on the outlook for earnings.
National Pension plans to hold more debt as government bonds are headed for their biggest annual gains in at least eight years after the Bank of Korea slashed borrowing costs at an unprecedented pace, taking the seven-day repo rate to a record low of 3 percent to revive the economy.
So-called alternative investments, such as private equity, infrastructure and real estate, are projected to make up 6 percent of the fund's investment portfolio at end-2009, higher than the fund's original target of 3.9 percent, it said.
South Korea's economy may shrink in the first and second quarters of next year because of the global slowdown, President Lee Myung Bak said on Dec. 27. South Korea's economy will expand 2 percent, the slowest pace in 11 years, in 2009 as the deepening global recession cools demand at home and abroad, the central bank said on Dec. 12. The economy last contracted for two consecutive quarters in 1998, and Lee's comments come after he pledged last week to ensure growth next year.
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