South Korea’s National Pension Service (NPS) and Teachers Pension (TP) are expected to increase their investment into small- and mid-cap stocks that have been stuck in a downward spiral since the country’s largest institutional investor shifted its focus to blue-chip stocks from smaller stocks earlier this year.

According to the investment banking industry on Friday, the NPS and TP on Wednesday announced that they, respectively, would pick five new asset management firms and two additional asset managers who will manage the funds that mainly invest in securities of small- and medium-sized companies. The NPS is expected to reallocate its investment in the current asset management portfolio or inject new funds to invest in small-to-mid-cap stocks, an unnamed NPS official said, adding that the pension fund would further up its investment in small- and mid-cap stocks depending on the market conditions.

Industry observers expect that following the decision of the country’s large institutional investors, additional capital worth between 150 billion won ($134.5 million) and 250 billion won would be funneled into small- and mid-cap stocks. In particular, the NPS decision to add new asset managers signaled that the NPS would increase investment in smaller stocks, an unnamed fund manager said, adding that such a move by the NPS would help improve overall appetite for “growth stocks including small- and mid-cap stocks” in the market.

The latest decision comes after the NPS, also the world’s third largest pension fund with an asset of about 520 trillion won, came under fire for its shift to add more index funds mainly composed of large-cap stocks to its investment portfolio was blamed to have triggered sell-offs in small- and mid-cap stocks in the country.

The pension fund have sold 96.8 billion worth small- and mid-cap stocks listed in the country’s main Korea Composite Stock Price Index (Kospi) market and 361.5 billion won worth shares in the secondary Korea Securities Dealers Automated Quotation (Kosdaq) market that mainly consists of small- and mid-cap stocks for the first eight months of this year, according to data obtained by Oh Jae-sae, a law maker in the Minjoo Party of Korea.

By Kim Jung-hwan

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