The Nationwide Pension Service will prolong the interval for strategic forex hedging and overseas trade swaps till the tip of subsequent yr amid overseas trade market instability. When tactical forex hedging (5%) is utilized along with the ten% strategic forex hedging ratio, forex hedging is feasible at a most ratio of 15%. Moreover, the NPS intends to actively interact in trade charge stabilization by way of a $65 billion overseas trade swap with the Financial institution of Korea till subsequent yr.
The Ministry of Well being and Welfare held the seventh Nationwide Pension Fund Administration Committee for 2025 on Dec. 15 and selected the Nationwide Pension Service’s non permanent strategic forex hedging interval. First, the Fund Administration Committee determined to increase the adjustment interval for the Nationwide Pension Service’s non permanent strategic forex hedging ratio till subsequent yr. In December final yr, the committee prolonged the non permanent strategic forex hedging plan till the tip of this yr to organize for overseas trade losses attributable to stabilization following the sharp rise in trade charges. The committee additionally plans to ascertain versatile implementation measures in order that strategic forex hedging can reply flexibly in accordance with market situations.
When forex hedging is utilized to abroad funding property, it has the impact of supplying {dollars} to the market. When the gained’s worth falls greater than the Nationwide Pension Service internally anticipated, it sells a part of its abroad property by way of forex futures (transactions to purchase and promote at a pre-agreed trade charge on a particular date).
The Nationwide Pension Service additionally determined to increase its $65 billion overseas trade swap contract with the Financial institution of Korea till the tip of subsequent yr. Overseas trade swap transactions can take up the Nationwide Pension Service’s spot overseas trade buy demand when the overseas trade market is unstable. Whereas overseas trade reserves lower by the transaction quantity in the course of the swap transaction interval, the benefit is that the lower in overseas trade reserves is non permanent for the reason that funds are absolutely returned at maturity.
With the Nationwide Pension Service extending the strategic forex hedging and overseas trade swap durations and even pursuing overseas forex bond issuance, it has successfully entered an all-out struggle for trade charge protection. The Ministry of Well being and Welfare’s Pension Finance Division just lately commissioned analysis providers on the need and feasibility of the Nationwide Pension Service’s overseas forex bond issuance, starting preparations for authorized amendments in earnest.
Analysts view that straight elevating some abroad funding funds by way of overseas forex bonds would cut back the size of promoting gained to safe {dollars} within the spot overseas trade market. It’s seen as having the benefit of dispersing the greenback buy demand for brand spanking new abroad funding funds, thereby decreasing shocks to the overseas trade market.
Nonetheless, criticism of mobilizing the Nationwide Pension Service, which is accountable for the general public’s retirement, for trade charge protection stays. It’s because when forex hedging is activated, returns lower in conditions the place the won-dollar trade charge rises, and sure forex hedging prices have to be borne. Moreover, overseas forex bonds are debt devices requiring principal and curiosity reimbursement, which might considerably scale back the Nationwide Pension Service’s returns. There are additionally issues that the Nationwide Pension Service’s uncertainty dangers, that are accountable for the general public’s retirement earnings, might increase additional because the Nationwide Pension Service’s reimbursement burden might enhance if international monetary situations deteriorate or rates of interest rise.
In the meantime, the Fund Administration Committee additionally deliberated and selected the Goal Extra Return Setting Plan. The goal extra return is the goal charge of return that the Fund Administration Headquarters should obtain past the benchmark return. The committee selected a cumulative goal extra return of 0.248 proportion factors for the five-year interval from 2022 to 2026, contemplating the need of producing extra returns and persevering with monetary market uncertainty in a balanced method.
Minister of Well being and Welfare Jeong Eun-kyung acknowledged, “The Nationwide Pension Service accounts for greater than 50% of gross home product (GDP) at round 1,400 trillion gained, and its scale is anticipated to develop additional with Nationwide Pension reforms, so there’s a must re-examine the fund administration system that was created prior to now.” She added, “By way of analysis and Fund Administration Committee discussions, we are going to put together measures that may harmoniously obtain the influence in the marketplace from a long-term perspective whereas defending the profitability of the Nationwide Pension Service, which is the dear retirement fund of the folks.”
