South Korean stocks will trade in negative territory this week as uncertainties in Japan and the Middle East are likely to dampen investors’ appetite for risks, analysts said.

After moving with great volatility, the benchmark Korea Composite Stock Price Index closed at 1,981.13 on Friday, up 25.59 points, or 1.31 percent, from one week ago.

The Seoul bourse was the sole stock market in Asia that finished in positive territory last week.

“There was no clear upbeat news,” even though the KOSPI finished higher, said Min Sang-il, an analyst at E-TRADE Korea Co. “It seems premature to brace for the KOSPI’s rise above the 2,000-level.”

Analysts said that the KOSPI gained ground last week on expectations that Korean steel makers and auto exporters would post higher profits as their Japanese rivals are forced to shut down production in the aftermath of devastating earthquake and tsunami.

But the Seoul bourse’s moves were volatile in the latest sessions, plummeting to as low as 1,882.09 last week during trading hours and highlighting its vulnerability to overseas issues.

“There will be lots of ups and downs in local markets next week, but the extent of the volatility may diminish from last week,” said Lee Seung-woo, an analyst at Daewoo Securities Co.

Investors will pay keen attention to Japan’s efforts to avert nuclear radiation risks, analysts said.

The supply chain squeeze in Japan in coming weeks is another added pressure to investor sentiment, as local manufacturers rely heavily on Japanese parts makers.

The on-going instability in the Middle East does not bode well for crude oil prices, another point of uncertainty that could discourage investors from buying risky assets this week, they added. 

(Yonhap News)