South Korean stocks will likely remain range-bound next week and in the lead up to the U.S. Fed's rate-setting meeting, but may suffer additional setbacks on appreciation of the U.S. dollar, local analysts said Saturday.
On Friday, the benchmark Korea Composite Stock Price Index (KOSPI) closed at 1,947.67, down nearly 1 percent from a week earlier. It also marked the fourth straight month of decline.
A heightened possibility of a U.S. rate hike following better-than-anticipated U.S. indicators continued to haunt investors throughout the week.
Minutes from the U.S. Fed's April meeting hinted at a possible rate hike in June on improved economic conditions in the world's largest economy. Earlier in the week, the U.S. said its consumer price inflation rose at the fastest clip in nearly three years in April, with its industrial output also growing at the fastest rate since November 2014.
Foreign investors offloaded a net 150.53 billion won (US$126.6 million) worth of South Korean shares this week, with institutions also dumping a net 181.2 billion won. Retail investors were the only net buyers, scooping up 168.73 billion won worth of local shares.
"We expect the index to continue moving in a tight range until the U.S. Fed's Federal Open Market Committee (FOMC) meeting next month, though technical rebounds will likely keep the index from falling below the 1,930 mark," Bookook Securities analyst Kim Sung-hwan said.
Kim, however, noted the KOSPI may further drop should foreign investors continue departing from the local market.
"In the end, the key is the won-dollar exchange rate. Foreign selling on concerns over a U.S. rate hike currently remains limited, but if the U.S. dollar continues to strengthen, the index may drop to even below 1,900," he added.
The local currency closed at 1,190.20 won against the U.S. dollar on Friday, down 18.8 won from a week earlier.
The U.S. FOMC meeting is scheduled for June 14-15. (Yonhap)