South Korea's National Pension Service, the nation's biggest investor, plans to allocate more funds to overseas equities as it seeks to boost returns.
The agency, which had 406 trillion won (HK$2.8 trillion) in assets as of March, will raise the weighting of overseas stocks to 10.5 per cent of its assets next year, up from a target of 9.3 per cent this year, said the Ministry of Health and Welfare, which oversees the agency.
The fund aims to cut domestic bond holdings to 54.2 per cent of assets next year, from the 56.1 per cent targeted for this year.
Lee Hyung-hoon, the director of the fund's policy division at the health ministry, said: "It's inevitable for us to turn to overseas stocks for higher profits as we're unable to actively invest in domestic equities because we already have a 6 per cent stake in the domestic stock market."
On May 29, the pension service cut its five-year target for investment returns to account for slowing economic growth.
The finance ministry unveiled a US$15 billion supplementary budget on April 16 to support exporters put under pressure by a weaker Japanese yen and revive an economy that grew last year at the slowest pace since 2009.
The government lowered its forecast for this year's gross domestic product on March 29 from 3 per cent to 2.3 per cent.
The pension service is targeting returns on its stock, bond and property investments of 6.1 per cent for 2014-18, down from the 6.6 per cent target announced last year for 2013-17.
Its latest five-year asset allocation plan calls for the pension fund to increase stocks to more than 30 per cent of assets by the end of 2018, from 26.7 per cent last year.
The Korean stock market has fallen 5.6 per cent and the MSCI Emerging Markets Index has slumped 10 per cent since Ben Bernanke, the chairman of the United States Federal Reserve, said on May 22 that the central bank could scale back asset purchases if it was confident of sustained economic improvement.
Decreased appetite for risky assets has prompted international investors to sell a net US$2.8 billion of Korean equities this month.