South Korean stocks are expected to face severe volatility next week as investors' concerns grow over escalating tensions on the Korean Peninsula, analysts said Saturday.
The country's key stock index, the KOSPI, closed at 1,901.80 on Friday, down 1.34 percent, sliding 2 percent this week and marking its biggest weekly decline since August, as North Korea fired artillery shells into South Korea, swelling concern that tensions will escalate.
Tensions with North Korea have risen since the sinking of the South Korean warship Cheonan in March, which killed 46 sailors.
The Nov. 23 shelling of Yeonpyeong Island, which killed four people and wounded 20, was the first attack of its kind since the 1950-1953 Korean War and spurred U.S. President Barack Obama to send a U.S. aircraft carrier to the Yellow Sea as a show of support and strength.
"Increased geopolitical risks may spook investors," said Lee Sun-yeop, an analyst at Shinhan Financial & Investment Securities. "But investors are also expected to scoop up shares when such risks are relieved to some degree."
U.S. stocks fell Friday on debt concerns for European countries and simmering tensions on the Korean Peninsula.
The blue-chip Dow Jones industrial average dropped 95.28 points, or 0.85 percent, to 11,092 on Friday. The technology-heavy Nasdaq Composite Index was down 8.56 points, or 0.34 percent, to 2,534.56.