The Korean stock market closed bearish on the first trading day of the year, with major blue chips performing poorly as investors shifted to net-selling mode due to a bleak earnings outlook for Korean exporters, analysts said.

The won-dollar exchange also fell below the 1,050 won threshold in Thursday trading to 1,048.3 won, the lowest since Aug. 2, 2011. The KOSPI also slid below the 1,970 mark during intraday trading.

The benchmark KOSPI closed at 1,967.19, down 2.2 percent, while the won-dollar exchange dropped 5.1 won to 1050.3 won.

Weak earnings projections for Korean companies on the depreciation of the yen have driven foreign and institutional investors to unload their shareholdings as a strong won would adversely affect their profitability.

Korea has relied on a weak currency to sustain economic growth, as a strong won would make its products lose price competitiveness overseas.

“Concerns over foreign exchange and Samsung Electronics’ weaker-than-expected earnings in the fourth quarter led to equity losses,” said Han Beom-ho, an analyst at Shinhan Investment.

BNP Paribas Securities Korea expected that Korea’s tech giant would miss its quarterly earnings forecast due to weakening demand for smartphones and the won’s appreciation.

The global investment bank said in its report that it estimates a 14 percent drop in operating profit of Samsung Electronics in the fourth quarter.

“One of the key reasons for the anticipated earnings miss is the strengthening of the Korean won against most major currencies, which will hurt the profitability of both (Samsung Electronics’) component and set product businesses,” BNP Paribas said.

Samsung is also about to face “competitive threat” from its rival Apple as the U.S. tech firm secured a deal to sell its high-end, larger-screen smartphones with China Mobile, the biggest wireless operator in China this year.

Samsung Electronics, Korea’s biggest blue chip, closed at 1,309,000 won on Thursday, down 4.59 percent.

Analysts said that falling foreign exchange rates posed a risk to the automobile sector, whose exports account for a large portion of Korean growth alongside IT products.

Hyundai Motor shares fell 5.07 percent to 224,500 won.

The benchmark KOSPI is expected to perform within the range of between 1,950 and 2,100 this month, according to a survey of 10 domestic brokerage houses.

“Investors are likely to continue to seek higher-yielding and riskier assets this year on expectations of a global economic recovery and rising interest rates,” said a team of equity and FX strategists at Woori Investment and Securities in a report.

“However, the financial markets could face increased volatility depending on the scale and pace of the U.S. monetary stimulus cuts.”

By Park Hyong-ki (hkp@heraldcorp.com)