The Korean stock market is expected to see the so-called “January effect” as the benchmark equity index has historically performed strongest in the first month of the year, analysts said.

The rally would be mostly driven by festive holidays not only in Korea but also China and the U.S., which would lead to increased retail sales and, thus, to increased domestic consumption.

These factors have had positive effects on the stock market by boosting both consumer and investor sentiment.

The benchmark KOSPI rallied almost 3 percent on average in January over the last 24 years, the highest rate of increase in the calendar year, Daishin Securities said in a stock report on Thursday.

November posted the second highest equity gains at about 2.3 percent due to the year-end holiday shopping season, the brokerage house noted.

Black Friday, which falls on the weekend in November after Thanksgiving Day in the U.S., for instance, is the biggest shopping occasion of the year.

Retail spending fell below expectations as a bleak economic outlook persisted, the National Retail Federation said, noting that consumer spending dropped 3.9 percent compared with last year.

However, analysts said that the January effect would be seen this month on the back of an economic recovery in the U.S.

“The U.S. economic recovery will likely further boost consumption, while expectations of China increasing its consumer spending are high,” said Lee Kyung-min, an analyst at Daishin Securities.

Ten domestic brokerages forecast that the KOSPI will rally within the range of between 1,890 and 2,312 on average this year.

IBK Securities had the lowest KOSPI projection of 1,850 for 2014, while Woori Investment & Securities had the highest at 2,420.

However, uncertainties persist as the U.S. Federal Reserve, under the next chief Janet Yellen, is ready to scale back its monthly bond purchases this month.

This latest decision on monetary stimulus cuts by the Federal Open Market Committee could trigger volatile trading and spur foreign equity selloffs in the Korean stock, bond and foreign exchange markets.

“Beginning in January, the committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month,” the U.S. FOMC said in a statement.

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