South Korean stocks are expected to stay in a narrow range next week as investors will likely take to the sidelines amid continued uncertainty, analysts said Saturday.
Local shares got off to a weak start this week despite an agreement to resume trade negotiations between the United States and China, whose fruitless conclusion in May had partly been blamed for a steady decline in South Korean exports.
South Korea's exports have dropped for seven consecutive months since December, largely led by dips in shipments of semiconductors, one of its key export items, which alone are said to account for nearly a quarter of its overall exports.
Tech shares lost further ground after Japan announced stricter restrictions for South Korea-bound shipments of three tech materials, including fluorine polyimide, that are used to produce semiconductors and display panels.
The benchmark Korea Composite Stock Price Index (KOSPI) closed at 2,110.59 on Friday, down 0.9 percent from a week earlier.
"Japan's export restrictions against South Korea had been somewhat anticipated but still came as a shock as it came shortly after the Group of 20 summit that Japan hosted and where it had advocated free trade," Chang Jae-cheol, a researcher at KB Securities, said.
Chang noted the Japanese move will not immediately affect South Korean production of semiconductors, noting local manufacturers currently hold enough materials for about three months.
Kim Byeong-yeon, an analyst from NH Investment and Securities, said investors will likely hold to their wait-and-see mode.
"The market believes the U.S. Fed is more likely to reduce its policy rate in July even if the U.S.-China trade negotiations resume," Kim said.
"However, we need to keep in mind that when the U.S. had preemptively cut its rates in the past, funds began to flow into risk assets not before but after the rate cut."
This week, all major entities, including foreigners and institutions, were net buyers.
Foreign investors scooped up a net 118 billion won ($101 million), with individuals purchasing a net 32 billion won. Institutions bought a net 4.3 billion won. (Yonhap)