South Korea’s state-managed National Pension Service (NPS), the third largest public pension fund in the world, has taken decisive action to shore up the country’s currency and stabilize its financial markets. On January 26, 2026, the Ministry of Social Protection announced a significant reduction in the target ratio of foreign stock holdings for the NPS, lowering it from 38.9% to 37.2%. At the same time, the fund’s weighting of domestic stocks was increased from 14.4% to 14.9%, a move designed to redirect investment back home and reduce pressure on the Korean won.
This policy shift comes after years of the NPS expanding its international investments in search of higher returns, a strategy that inadvertently ramped up demand for U.S. dollars in the local currency market. As the Ministry explained in its statement, “The demand for dollars increased with the pension fund’s growth, while the supply of dollars in the domestic foreign exchange market was recently less than the demand.”
The immediate impact of the announcement was dramatic. According to data published by Reuters, the won surged by as much as 2% to 1,433.3 per U.S. dollar, marking its strongest level since December 31, 2025. The currency’s rally was further buoyed by a strong performance from the Japanese yen earlier in the day. The positive sentiment spilled over into the stock market as well. The benchmark KOSPI index has jumped 17% since the start of January 2026, building on a remarkable 76% surge throughout 2025—the largest annual increase since 1999.
Jeong Eun-kyeong, South Korea’s Minister of Social Protection, addressed the NPS management committee in Seoul, noting, “There has been an unprecedented rise in the domestic stock market and weakness in the local currency.” The committee’s decision, she said, was shaped by these extraordinary market conditions.
The NPS, which managed assets totaling 1,427.7 trillion won (about $991.31 billion) as of October 31, 2025, has long been a heavyweight in global finance. A hefty 58% of its portfolio was invested overseas at the end of October, reflecting a strategy that has paid off handsomely in recent years. But as the won slipped to its lowest levels since 2009, policymakers grew increasingly concerned about the risks of further depreciation and the knock-on effects for the broader economy.
To address these risks, the NPS committee has also authorized the temporary holding of domestic stocks beyond the newly set target ratio. The reasoning? Constant portfolio rebalancing, especially in a volatile market, could have destabilizing effects. The committee plans to reassess this temporary measure after closely monitoring market conditions during the first half of 2026.
President Lee Jae Myung weighed in last week, expressing cautious optimism: “Authorities expect the won to strengthen to around 1,400 per dollar within one or two months.” However, he also stressed that domestic policies alone would not be enough to stabilize the foreign exchange market, hinting at the complex interplay of global forces at work.
Behind the scenes, the Ministry of Social Protection and the NPS have been consulting with foreign exchange authorities since November 2025. The goal has been to strike a balance between maximizing fund returns and ensuring the stability of South Korea’s currency markets. This dialogue led to the creation of a new body specifically tasked with exploring ways to harmonize these sometimes competing objectives.
In addition to shifting its investment allocations, the NPS has ramped up its efforts to manage currency risk more actively. The fund is authorized to hedge up to 10% of its foreign assets strategically and an additional 5% tactically. At the end of December 2025, it launched a new phase of strategic currency risk hedging, part of a broader push to stabilize the won. According to the Ministry, this new approach reflects “a more flexible management of currency risk.”
Interestingly, while currency hedging has become a central part of the NPS’s toolbox, the specific topic of expanding hedging operations was not discussed at the latest committee meeting, as Minister Jeong confirmed to reporters. Still, the timing of the new strategic hedging phase—just weeks before the portfolio shift—suggests a coordinated effort to protect the fund’s assets and the country’s economic stability.
The government’s move to review the pension fund’s portfolios, as announced on January 26, 2026, underscores just how high the stakes have become. The NPS is not only a pillar of retirement security for millions of South Koreans but also a major player in both domestic and international markets. Its investment decisions can move markets and influence the trajectory of the Korean won.
For years, the NPS’s strategy of seeking higher yields abroad was seen as prudent, especially as South Korea’s population ages and the demands on the pension system grow. But the flip side of such global diversification is increased exposure to currency fluctuations and the risk of capital outflows during periods of market stress. When the local currency comes under pressure, as it has recently, policymakers are forced to weigh the benefits of global returns against the need for financial stability at home.
Market analysts have been quick to point out that the NPS’s new investment targets could have ripple effects beyond South Korea’s borders. A reduction in foreign stock purchases by one of the world’s largest pension funds could dampen demand in global equity markets, while the increased focus on domestic assets may further fuel the rally in Korean stocks.
At the same time, the government’s willingness to allow the NPS to temporarily exceed its domestic stock allocation highlights the delicate balancing act policymakers face. Too much rigidity in portfolio management could exacerbate volatility, but too much flexibility risks undermining the very targets set to guide prudent investment.
As the first half of 2026 unfolds, all eyes will be on the NPS and its next moves. The fund’s performance, and the fate of the won, will serve as a bellwether for broader trends in global capital flows and the ability of national policymakers to navigate an increasingly interconnected financial landscape. For now, the Ministry of Social Protection and the NPS appear committed to a strategy that prioritizes both stability and growth—no easy feat in today’s turbulent markets.
With the review of the pension fund’s portfolios now underway, South Korea’s financial authorities have signaled their determination to adapt to changing market realities. The question is whether these measures will be enough to keep the won strong and the pension system secure in the months ahead.