Market Analysis2025-11-10
National Pension Fund Considering ₩30 Trillion Stock Purchase: Rebalancing Timing for U.S. ETF Investors
South Korea's National Pension Service (NPS) is considering an additional stock purchase of up to ₩30 trillion to support the domestic equity market. This may be a strategic moment for investors to align expectations of a Korean market rebound with their U.S. ETF rebalancing timing.
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Reports have emerged that the National Pension Service (NPS) is reviewing plans to purchase an additional ₩30 trillion in domestic equities to stabilize the Korean stock market. With the KOSPI falling to the 2,400 level amid sustained net selling by foreign investors, the government and NPS appear to be moving toward market stabilization measures. For Korean investors concentrated in U.S. ETFs, this is a moment to consider the potential for a Korean market rebound and portfolio diversification. If Korean equities recover from an undervalued state, rebalancing a portion of U.S. ETF holdings could enhance diversification. Use an asset allocation calculator to review your domestic and international asset weightings, and a rebalancing calculator to identify the optimal time to adjust.
Background of NPS Purchases and Their Market Impact
The NPS's review of additional purchases is a response to structural undervaluation in the Korean stock market and sustained foreign capital outflows. The KOSPI fell roughly 8% from around 2,600 at the start of the year to the 2,400 level, dramatically underperforming global markets (S&P 500: +22%). Large-cap tech stocks such as Samsung Electronics and SK Hynix weakened due to a slowdown in the semiconductor cycle, and weakening Chinese economic conditions worsened the earnings outlook for export-oriented companies, leading to seven consecutive months of net foreign selling through November. The NPS currently holds approximately ₩250 trillion in domestic equities, representing roughly 23% of its total assets under management of ₩1,100 trillion. A ₩30 trillion additional purchase would be a major investment expanding the domestic equity allocation to 25–26%. Historically, large-scale NPS buying has often served as a signal of a market bottom. During the COVID-19 shock in March 2020, a ₩10 trillion purchase helped the KOSPI rebound from the 1,400 level, and during the rate hike shock in October 2022, a ₩15 trillion purchase triggered a bounce from the 2,200 level. If NPS buying gains momentum this time, it could again catalyze a near-term bottom formation and technical rebound. However, a sustainable uptrend over the longer term will require a recovery in corporate earnings and foreign investor sentiment.
Korea vs. U.S. Equity Markets: A Valuation Comparison
The valuation gap between Korean and U.S. equities is currently at a historically wide level. The KOSPI trades at a P/E ratio of 10x, well below its historical average of 12x, with major companies such as Samsung Electronics at 9x P/E and Hyundai Motor at 4x P/E — reflecting extreme undervaluation. The dividend yield of 2.8% is higher than that of the U.S. (S&P 500: 1.5%), making Korean equities more attractive for income-oriented investors. In contrast, the S&P 500 trades at a P/E of 22x, above its historical average of 17x, and the Nasdaq P/E of 35x is approaching dot-com bubble levels. Large-cap tech valuations are stretched, with Apple at 30x P/E and NVIDIA at 60x P/E. On a price-to-earnings-growth (PEG) basis, the KOSPI scores 0.8 (undervalued) versus the S&P 500 at 2.5 (overvalued), indicating relative attractiveness for Korean equities. That said, Korean market undervaluation reflects structural challenges — low growth, geopolitical risk, and corporate governance issues — so a value trap is also a real possibility. Meanwhile, U.S. equities are richly valued but can justify a premium given superior earnings growth and innovation capacity. Investors must weigh the opportunity from a rebound in undervalued assets against the risk of a value trap.
Diversification Strategy Across Domestic and International Assets
A 100% U.S. ETF allocation carries concentration risk; including a portion of domestic assets can enhance diversification. A conservative diversification strategy consists of 80% U.S. ETFs (SPY 50%, AGG 20%, QQQ 10%) and 20% Korean assets (KODEX 200 15%, Samsung Electronics 5%). This approach prioritizes stability while capturing upside potential if the Korean market rebounds. A balanced diversification strategy allocates 70% to U.S. ETFs (SPY 45%, AGG 15%, QQQ 10%) and 30% to Korean assets (KODEX 200 20%, sector ETFs 10%), distributing exposure evenly between U.S. and Korean markets to spread both currency and market risk. An aggressive diversification strategy allocates 60% to U.S. ETFs (SPY 30%, QQQ 25%, growth sectors 5%) and 40% to Korean assets (KODEX 200 20%, individual stocks 20%) — an active approach seeking higher returns from a rebound in undervalued Korean equities. The advantages of including Korean assets include currency risk hedging (holding some won-denominated assets mitigates the impact of exchange rate fluctuations), a value-buy opportunity (the potential for excess returns when attractively valued Korean equities recover), and diversification benefits (Korean equities may decline less than U.S. equities during a U.S. market correction). The disadvantages include lower long-term return potential relative to the U.S., lower liquidity that can result in greater price impact for large trades, and higher individual stock risk compared to ETFs.
Rebalancing Timing and Execution Strategy
Timing your rebalancing around news of NPS purchases is important. In Phase 1 — Wait and Watch (now through December) — confirm the scale and timing of NPS purchases, assess whether the KOSPI finds support at the 2,400 level, and monitor whether the foreign net-selling trend reverses. In Phase 2 — Initial Purchases (December through January) — sell a portion (5–10%) of U.S. ETF holdings (SPY, QQQ) to build KRW cash, make small test purchases of Korean ETFs (KODEX 200) or Samsung Electronics to gauge market response, and consider increasing exposure if the KOSPI breaks above 2,500. In Phase 3 — Full Rebalancing (January through March 2026) — once the KOSPI breaks above 2,600 and a shift to net foreign buying is confirmed, sell an additional 10–20% of U.S. ETF positions to expand Korean asset exposure to the target range (20–30%), and maintain target allocations through quarterly rebalancing. Key execution considerations: avoid selling your entire U.S. ETF position and maintain at least 70% in U.S. assets; aggressively increasing Korean exposure before a rebound is confirmed carries significant risk; and while converting USD to KRW at the peak exchange rate of ₩1,460 may offer currency gain realization, be mindful of the currency loss risk when re-entering later.
Portfolio Simulation and Risk Management
Use an asset allocation calculator to simulate a diversified domestic and international portfolio. Scenario 1 — 100% U.S. (SPY 60%, AGG 30%, QQQ 10%): expected return +8%, volatility 12%, maximum drawdown -15%, with an additional +12% currency gain if the exchange rate rises. Scenario 2 — 80% U.S. + 20% Korea (SPY 50%, AGG 20%, QQQ 10%, KODEX 200 15%, Samsung 5%): expected return +7.5%, volatility 11%, maximum drawdown -14% — slightly reduced volatility, partial currency risk hedge, and upside potential if the Korean market recovers. Scenario 3 — 70% U.S. + 30% Korea (SPY 45%, AGG 15%, QQQ 10%, KODEX 200 20%, individual stocks 10%): expected return +7%, volatility 13%, maximum drawdown -16% — slightly higher volatility from increased Korean exposure, but returns could rise to +9–10% if undervalued equities rebound. Risk management principles: cap Korean asset exposure at 30% of the total portfolio to manage concentration risk; limit individual stock positions to 10% or less to control company-specific risk; maintain target allocations through quarterly rebalancing, with adjustments triggered when weightings deviate by ±5–10%; and establish a stop-loss plan if the KOSPI falls further below 2,300 to limit downside.
Conclusion
The NPS's review of a ₩30 trillion purchase could be a signal that the Korean market is bottoming, but a cautious approach is warranted. We recommend maintaining a U.S. ETF-centered portfolio while including a 20–30% allocation to Korean assets for enhanced diversification, using a rebalancing calculator to plan a phased entry, and evaluating portfolio scenarios with an asset allocation calculator to manage risk effectively.
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