Seoul:The recent steep drop in Korea's stock market has underscored the National Pension Service's (NPS) limited buying activity during a critical market downturn. The Kospi index fell by 7.57 percent, dipping below the 5,600-point mark, while both the Kospi and Kosdaq indices saw declines of more than 8 percent, triggering circuit breakers for the first time since July 29.

According to Yonhap News Agency, the selloff was fueled by renewed speculation about potential U.S. interest rate hikes and concerns over the peaking of AI investments, leading to broader declines in major Asian markets. Japan's market fell by 4.9 percent, and Taiwan's by 3.41 percent, but Korea faced particularly sharp losses, partly due to its reliance on memory semiconductors and deteriorating market conditions.

The NPS, which has traditionally acted as a stabilizing force in times of market distress through portfolio rebalancing, played only a limited role this time. Foreign investors sold a net 4.8 trillion won ($3.4 billion), while pension funds purchased just 35.4 billion won. The NPS was constrained after failing to reduce its domestic equity holdings during the previous market rally.

During the surge in the Kospi from the latter half of last year, the NPS Fund Management Committee twice suspended rebalancing, in January and May, while increasing its domestic equity allocation. This deviation from standard investment practices drew warnings from experts and concern from civic organizations about the fund's independence.

Some foreign investment banks have cautioned that the NPS's actions have heightened market volatility instead of providing stability. While retail investors and the government may have initially welcomed the decision to avoid selling shares, the recent market plunge illustrates the consequences of delaying necessary adjustments.

The NPS now faces the challenge of prioritizing long-term investment strategies over short-term market conditions or political considerations, to ensure the protection of citizens' retirement savings and maintain market stability.