Middle East warfare has burnt the South Korean won! The head of South Korea's largest pension fund says action may need to be taken to stabilize the exchange rate.

The head of South Korea's largest pension fund stated that during recent market volatility, the South Korean won has weakened against the US dollar, and measures may need to be taken to stabilize it. Kim Sung-joo, chairman and CEO of the National Pension Service (NPS) with assets under management of $1 trillion, said in an interview last Friday that he does not believe the recent drop to 1 US dollar to 1500 Korean won represents a "new normal," and believes that a level of 1 US dollar to 1400 Korean won is more reasonable and balanced. Data shows that the Korean won has fallen by about 5% against the US dollar this year, to 1 US dollar to 1514.25 Korean won, making it one of the worst-performing currencies in Asia. Kim Sung-joo stated that NPS is in continuous discussions with South Korea's financial authorities on a new framework aimed at improving fund performance and enhancing foreign exchange market stability. These discussions are expected to conclude soon. If an agreement is reached, the proposed measures will be adopted. He added that another topic under consideration is a strategic hedging arrangement using the fund to help stabilize the Korean won. Kim Sung-joo said, "We do not fully understand the reasons behind the continued weakening of the Korean won. We have long recognized the need to address foreign exchange fluctuations. Now it is widely acknowledged that some form of action may be necessary following the recent rapid exchange rate fluctuations." Kim Sung-joo's comments highlight the delicate balance facing global investors. Rising oil prices have sparked concerns about stagflation, and tensions in the private credit sector are impacting the market. As asset values decline, South Korea appears particularly vulnerable as the country heavily relies on imported energy and plays a key role in the artificial intelligence (AI) supply chain, where the return on significant investments remains uncertain. The Asset Allocation of the National Pension Service of South Korea Major Challenges As one of the world's largest pension funds, the National Pension Service's movements are closely watched. The fund achieved a record return of 18.8% last year, mainly due to the rise in the domestic stock market in South Korea. Kim Sung-joo, who served as chairman for three years from 2017 to 2019, returned to lead the institution at the end of last year, facing different challenges. The situation in the Middle East shows no signs of easing. Kim Sung-joo said, "Compared to other countries, we are relatively more affected by this conflict. For this reason, we have initiated an internal crisis response team." Despite the urgency of the situation, the National Pension Service has not made major adjustments to its asset allocation or investment strategy, but is making targeted adjustments to reduce the impact on specific areas. Kim Sung-joo stated that due to the impact of the conflict in the Middle East, the National Pension Service is facing "significant challenges" in investment returns, although its exposure to the Middle East region is relatively limited. He said, "The Korean economy, especially the stock market, is significantly affected by this conflict, which is having a substantial impact on our investment returns." The fund is also monitoring the "structural vulnerabilities" in the global private credit market. Losses and suspensions of redemptions by some asset management firms have raised market concerns. Kim Sung-joo stated that the National Pension Service does not have direct exposure to these affected funds. According to data from the Financial Supervisory Service of South Korea, the National Pension Service and the sovereign wealth fund Korea Investment Corporation collectively invest over 18 trillion Korean won (approximately $119 billion) in the private credit sector. He said, "With the recent warning signals, many funds, including the National Pension Service, are devising response measures. Currently, we are continuously monitoring the situation and not immediately adjusting our asset allocation." As the Korean won continues to depreciate, discussions are underway on whether additional measures are needed. Kim Sung-joo reiterated that one option under consideration is issuing foreign currency bonds to diversify funding sources, but this would require amending the National Pension Law. He said preparations are already being made for the necessary legislative adjustments. He stated, "In my opinion, the most important thing is for this war not to continue for a long time."