Market collapse exposes cost of policy misjudgments
: Countless people hurt by pension, stock policy bungles
Korea's stock market has suffered a devastating reversal, plunging from record highs above 9,300 to the mid-5,000s in just four months. KOSPI's successive crashes, including a 7.57 percent plunge on Oct. 15, following a 5.46 percent decline on Oct. 13, have inflicted enormous losses on investors and shaken confidence in the market, despite a slight rebound on Oct. 16. However, as countless households watch their savings evaporate, President Lee Jae Myung's administration has failed to provide convincing answers about policy decisions that may have aggravated the turmoil. The most troubling questions concern the National Pension Service (NPS), the country's largest institutional investor, and the government's apparent willingness to subordinate investment discipline to political priorities.
The NPS exists to safeguard the retirement security of millions of Koreans. Its overriding responsibility is to manage contributions prudently, balancing returns against risk to ensure the fund can meet its long-term obligations. It is not a government instrument for propping up stock prices, rewarding political constituencies or manufacturing a bullish market ahead of an election. Decisions made this year have raised serious doubts about whether those fundamental principles remain intact.
Following President Lee's remarks suggesting that the pension fund's domestic equity allocation was too low, the NPS raised its target allocation to Korean stocks from 14.4 percent to 14.9 percent in January, then increased it dramatically to 20.8 percent in May. It also widened its strategic tolerance band from plus or minus three percentage points to six and suspended rebalancing through June. These changes came as the KOSPI surged, pushing the fund's domestic equity holdings above its year-end target and toward the upper limits of its permitted allocation.
Rebalancing is not speculative market timing. It is a basic risk-management discipline that prevents an asset class from dominating a portfolio after a dramatic rally. By periodically selling assets whose weight has grown and reallocating the proceeds, a pension fund protects itself against concentration risk and preserves the capacity to buy when prices fall. Suspending that discipline during the recent rally left the NPS more exposed precisely when valuations and market enthusiasm demanded caution.
The consequences have been painful. Foreign investors were able to sell during the rally and secure profits, while many individual investors bought near the peak and suffered severe losses during the subsequent collapse. The NPS itself reportedly saw the valuation of its domestic equity holdings fall by more than 120 trillion won ($89.7 billion) in July alone, with some estimates placing the decline at an even higher figure. Further market losses threaten to magnify the damage. Although valuation losses are not necessarily permanent or realized losses, their scale underscores the risks of allowing portfolio concentration to grow unchecked.
The introduction of single-stock leveraged exchange-traded funds (ETF) has also drawn criticism for potentially amplifying market swings. Such products magnify both gains and losses, making sharp declines more painful for investors. Global factors, including concerns about artificial intelligence investment and persistent U.S. inflation, undoubtedly contributed to the sell-off. But these external pressures do not absolve policymakers of responsibility for domestic decisions that may have intensified volatility.
The NPS argues that large-scale selling could destabilize the market and that frequent trading does not necessarily improve long-term returns. Those concerns deserve consideration but they cannot justify abandoning established risk controls without transparent, compelling evidence that the benefits outweigh the dangers. Japan's Government Pension Investment Fund, by contrast, operates within a disciplined asset-allocation framework, demonstrating that a major public pension fund can manage market exposure without becoming an instrument of short-term political objectives.
More disturbing still is the apparent secrecy surrounding the decisions. The NPS has reportedly withheld minutes of the committee meeting that approved the rebalancing suspension until 2030. NPS Chairman Kim Sung-joo has said the January and May decisions were unanimous and required no vote. But unanimity does not establish that a decision was sound, nor does it eliminate the public's right to understand how a policy affecting national retirement assets was justified.
President Lee has offered little reassurance. His reported response that somebody must have made the decision to introduce leveraged ETFs falls far short of the accountability expected from a head of government. When policies fail, responsible leadership demands answers, not evasion.
The government must disclose the evidence and reasoning behind these decisions, explain how risks were assessed and establish who bears responsibility for any failures of judgment. The pension fund's governance must also be strengthened to protect its independence from political interference.
Markets will inevitably rise and fall. What should never fluctuate with political convenience is the principle that public retirement money must be managed for the long-term security of its contributors. Lee's government must recognize that the NPS belongs to the people, not the presidency. Without transparency, accountability and institutional independence, today's market losses could become tomorrow's crisis of public trust — and ultimately, a threat to the retirement security of generations of Koreans.
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