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National Pension Service Aggressively Buying in Bear Market

National Pension Service Aggressively Buying in Bear Market

Posted October. 31, 2007 03:43,   


The National Pension Service (NPS) placed aggressive buy orders last year amounting to 23 billion won, although it perceived an upcoming bear market, according to a report submitted by the state-run company to Grand National Party legislator Mun Hee on Tuesday.

The NPS conducted its own inspection, and found that it purchased 45,830 shares of a company only known as “M” from June 27 to 29 last year. The average price per share was 18,716 won for this period. The total amount of the purchase amounted to 854 million won.

From October 9 to 11 last year, it again purchased 395,000 shares of a company known as “L” for 22.8 billion won. The average price per share was 56,966 won for this period.

Both purchase decisions came even when it predicted upcoming turmoil in the market. For example, it determined on June 26 that M’s shares would fall, and on July 5 that L’s shares would follow suit. According to its fund managing protocol, the NPS classified the two stocks as third class risk stocks.

Once a stock is classified as such, the NSP has to reduce its shares of it to less than 90% of the total shares traded in the market, and the NSP’s total value of the shares should be less than 9 billion won.

The NSP risk management protocol mandates close observation in the first stage, and disposal of 20% of a stock in the second phase.

Since the NSP’s purchase, M’s shares kept sliding, and closed at 14,800 won per share on July 18, or 20 days after the last purchase. Likewise, L’s shares fell to 51,900 won on December 7 last year.

The NSP inspection team states in the report, “Our company first purchased M’s shares on April 13, 2006. M’s bad earnings and poor sales kept pushing the stock price downward, and its stock entered the third risk stage on June 26. Notwithstanding the facts, our company purchased additional shares worth 854 million won. These acts represented our failure to follow the protocol.”

As to L’s shares, the team also found out that the NSP investment board was ignored. The board prohibited further purchases. But the top management placed an order for 22.7 billion won worth of L’s shares.

The NSP explained in a statement submitted to Representative Mun, “It is true that we expected M’s shares to fall. But the analysis report was filed after we made the purchase. We also mistakenly interpreted the recommendation that we could buy more shares as long as we maintained the number of shares at a certain level.”