South Korea pension fund lowers foreign stock target to support won

By Jihoon Lee and Cynthia Kim

SEOUL, Jan 26 (Reuters) - South Korea's state-run NPS pension fund has lowered its target ratio for foreign stock holdings to support the won, the welfare ministry said on Monday, sending the currency higher.

The ministry oversees the investment policies of the NPS, the world's third-largest public pension fund, which has been increasing overseas investment for years to seek higher returns, raising dollar demand in the onshore currency market.

The target ratio for end-2026 was lowered to 37.2% from the previous 38.9% with the domestic stocks weighting raised to 14.9% from 14.4%, the ministry said in a statement after the pension fund's management committee meeting in Seoul.

Dollar demand was increasing with the pension fund's growing size, while dollar supply in the onshore foreign exchange market was recently being outweighed by demand, the ministry said.

The won KRW= strengthened as much as 2% to 1,433.3 per dollar after the meeting outcome, hitting its highest level since December 31, after opening the session 1.1% higher on sharp gains in the Japanese yen JPY=.

There had recently been an unprecedented rise in the domestic stock market and weakness in the local currency, Welfare Minister Jeong Eun-kyeong said at the meeting.

The KOSPI .KS11 has risen 17% so far this month, after a 76% jump in 2025, its biggest since 1999.

The committee also decided to temporarily allow domestic stock holdings to exceed the target ratio beyond a set range, citing worries about the market impact of constant portfolio rebalancing. It added that the range would be reassessed after closely monitoring market conditions in the first half.

President Lee Jae Myung said last week that authorities expect the won to strengthen to around 1,400-per-dollar in a month or two, although he said that domestic policies alone would not be able to stabilise the foreign exchange market.

The ministry and the NPS have been consulting with foreign exchange authorities since November, after setting up a body to discuss ways to balance the fund's returns and foreign exchange stability, as the won hovered at its weakest levels since 2009.

Foreign exchange hedging was not discussed at the meeting, Jeong told reporters. The NPS is currently allowed to hedge a maximum of 10% of its foreign assets under its strategic hedging policy, and an additional 5% for tactical hedging.

The NPS initiated a new round of strategic foreign exchange hedging operations late last month, as part of broader policy efforts to stabilise the won, after the welfare ministry decided to hedge currency risk more flexibly.

The NPS held 1,427.7 trillion won ($991.31 billion) in assets as of end-October, with overseas assets accounting for 58% of the total.

($1 = 1,440.2100 won)