NPS posts record 189 trillion won Q2 gain as chip stocks surge

South Korea's National Pension Service earned 189.6 trillion won in a single quarter — more than the annual GDP of many countries — as its bet on AI-driven semiconductor stocks delivered a 63.9% return.

South Korea's National Pension Service recorded a 189.6 trillion won ($136 billion) gain on its domestic stock portfolio in the second quarter, the largest quarterly increase in the fund's history, as surging semiconductor stocks propelled the KOSPI above 9,000 points for the first time.

"The NPS portfolio is now a proxy for the Korean semiconductor cycle — that concentration is both the source of this quarter's record returns and the biggest risk going forward," said Hannah Park, a former credit analyst at Moody's. "When two stocks account for more than half of your domestic equity holdings, rebalancing becomes a mathematical necessity, not a choice."

SK Hynix alone contributed 82.1 trillion won to the gain, with the fund's stake surging 190.3% to 125.3 trillion won as AI memory demand drove the stock to repeated highs. Samsung Electronics added 69.2 trillion won, bringing the combined semiconductor weighting in NPS's domestic equity portfolio to 55.7%, up from 40.4% at the end of March. The fund's total domestic stock holdings reached 486 trillion won as of July 6, up from 296.4 trillion won three months earlier.

The record quarter masks a looming structural challenge. A government measure that temporarily suspended NPS's domestic equity rebalancing expired at the end of June, meaning the fund may now need to trim its outsized semiconductor positions to restore its target asset allocation. With SK Hynix and Samsung Electronics representing more than half the portfolio, any significant selling could amplify downward pressure on the KOSPI, which has already shown signs of volatility after a 19-fold profit jump at Samsung failed to reassure investors worried about an AI boom slowdown.

Concentration Risk Intensifies

The NPS's semiconductor bet has reshaped its portfolio in ways rarely seen among global pension funds. The combined weighting of SK Hynix and Samsung Electronics — 55.7% — is more than double the 26% share of Apple and Microsoft in Norway's $1.7 trillion sovereign wealth fund, a common benchmark for large institutional portfolios. SK Square, the holding company of SK Group's non-chip affiliates, added 12 trillion won, while Samsung Electro-Mechanics contributed 10.4 trillion won, extending the tech concentration further.

Not all positions benefited. Mirae Asset Securities lost 1.07 trillion won in valuation, the largest single-stock decline in the portfolio. LG Energy Solution fell 574 billion won, and internet platforms Kakao and Naver each dropped more than 400 billion won, underscoring how narrowly the Q2 rally was concentrated in semiconductor names.

Rebalancing Overhang Looms

The expiration of the rebalancing suspension creates an unusual dilemma for the NPS. The fund's domestic equity allocation has likely overshot its strategic target by a wide margin after the 63.9% quarterly return, meaning the default course of action would be to sell domestic stocks and rotate into fixed income or international equities. The last time the NPS faced a similar concentration issue in 2021, it took more than six months to gradually reduce its overweight positions, and the KOSPI fell 8% during that period.

Market participants are watching for the NPS's July rebalancing announcement, which will signal the scale and pace of any reduction. For now, the fund's record Q2 serves as both a testament to the AI trade's power and a warning about the risks of riding a single sector to extreme concentration.

This article is for informational purposes only and does not constitute investment advice.