Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Korea NPS: Asset Allocation Targets & Negative Screening on Coal

NPS New Benchmarks for Local Stocks: NPS-KR250 (Direct) & KOSPI+KOSDAQ 150 (Consignment)

POSCO Split Dynamics from a Trading Perspective

Korea NPS Local Equity Weight Change: Stocks to Be Affected

Korea NPS, Domestic Stock Asset Allocation Ratio Change

KOSPI 200 1Q Quarterly Div Stocks: Status Check

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Quantitative Analysis

<div><p>On April 9, the Korea NPS finalized the changes in the asset allocation tolerable bands. It raised the SAA (strategic asset allocation) from ±2.0%p to ±3.0%p but cut the TAA (tactical asset allocation) to ±2.0%p to keep the overall tolerable band at ±5.0%p.</p></div><div>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"SAA &amp; TAA allowable range"}'>SAA &amp; TAA tolerable bands</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SAA"}'>SAA (strategic asset allocation)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TAA"}'>TAA (tactical asset allocation)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Domestic bonds"}'>Domestic bonds</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±3.5"}'>±3.5%p</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±5.0"}'>±5.0%p</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Overseas bonds"}'>Overseas bonds</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±0.5"}'>±0.5%p</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±1.0"}'>±1.0%p</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Domestic stocks"}'>Domestic stocks</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±2.0"}'>±3.0%p</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±3.0"}'>±2.0%p</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Overseas stocks"}'>Overseas stocks</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±1.0"}'>±1.0%p</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±1.0"}'>±1.0%p</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Alternative"}'>Alternative</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±1.2"}'>±1.2%p</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"±1.2"}'>±1.2%p</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: Korea NPS"}'>Source: Korea NPS</td></tr>
</tbody>
</table>
<hr>
<p><strong>Here is what it would imply on the overall trading pattern:</strong></p>
<div data-message-id="364865"><div><div><div><div><div><ul>
<li>SAA (Strategic Asset Allocation): The fund management committee determines the allocation weight for the portfolio target asset, usually for the next 5 years.</li>
<li>TAA (tactical asset allocation): Each portfolio manager flexibly determines which stock/asset gets an additional weight.</li>
</ul></div></div></div></div></div></div>
<div data-message-id="364867">
<p><strong>Why would this change, while reducing the TAA, stop the selling spree?</strong></p>
<p>The NPS portfolio managers have been pressured to sell in the current market phase because they can only care about maximizing return. On the other hand, the SAA should have been exposed to external political influence. By upping the SAA but reducing the TAA, keeping more local equity while not worrying too much about maximizing absolute return can be more easily justified inside the NPS.</p>
</div>
</div>

On April 9, the Korea NPS finalized the changes in the asset allocation tolerable bands. It raised the SAA (strategic asset allocation) from ±2.0%p to ±3.0%p but cut the TAA (tactical asset allocation) to ±2.0%p to keep the overall tolerable band at ±5.0%p.








SAA &amp; TAA tolerable bands
SAA (strategic asset allocation)
TAA (tactical asset allocation)


Domestic bonds
±3.5%p
±5.0%p


Overseas bonds
±0.5%p
±1.0%p


Domestic stocks
±3.0%p
±2.0%p


Overseas stocks
±1.0%p
±1.0%p


Alternative
±1.2%p
±1.2%p

Source: Korea NPS



Here is what it would imply on the overall trading pattern:

SAA (Strategic Asset Allocation): The fund management committee determines the allocation weight for the portfolio target asset, usually for the next 5 years.
TAA (tactical asset allocation): Each portfolio manager flexibly determines which stock/asset gets an additional weight.


Why would this change, while reducing the TAA, stop the selling spree?
The NPS portfolio managers have been pressured to sell in the current market phase because they can only care about maximizing return. On the other hand, the SAA should have been exposed to external political influence. By upping the SAA but reducing the TAA, keeping more local equity while not worrying too much about maximizing absolute return can be more easily justified inside the NPS.



Korea NPS Local Equity Trading Goes Extreme: TAA ±2.0%p Must Be Near Zero Now