South Korean stocks are expected to be affected this week by how the North Korea risks heightened by the U.N.’s toughened sanctions on its nuclear test will be playing out among investors’ sentiment, analysts said Saturday.

The benchmark Korea Composite Stock Price Index (KOSPI) closed down 20.48 points or 1.01 percent to 2,006.01 on Friday from the previous week.

Earlier this week, the market tided over the increased uncertainty after the automatic across-the-board budget cuts in the U.S. went into effect relatively well, but it got off to a weak start after China unveiled regulations on its property markets.

The index gained some ground later when the U.S. Federal Reserve reassured that it will keep its quantitative easing steps.

Improving economic indicators in the U.S. and Europe also improved the market’s mood.

However, heightened risks related to the U.N.’s sanctions on the North for its nuclear test and Pyongyang’s increased saber-rattling put a damper on investors’ sentiment, bringing the index down to near the 2,000 mark.

North Korea risks could increase further next week as South Korean and U.S. forces are to kick off their annual Key Resolve joint military exercise, analysts said.

“The simultaneous falls in the stock, bond and currency markets later this week and increased sell-offs by foreigners in spot and futures markets appear to be the result of North Korea risks,” said Lee Seung-woo, an analyst at KDB Daewoo Securities Co.

Lee noted that investors need to focus on how uncertainty from the North could unfold next week in order to gauge the broad direction of the stock market.

Other analysts are still pinning their hopes on the U.S. markets. They said that the Korean market could take a cue from U.S. stocks, which recently rose above the level seen before the global financial crisis in 2007. (Yonhap News)