South Korea’s benchmark Kospi is projected to dip below the psychologically important 2,000 mark, if escalating trade tensions with Japan are prolonged, a report released by a local brokerage firm said Tuesday.

Amid a lackluster stock market performance, Tokyo is expected to implement the decision to exclude South Korea from its whitelist of trusted export nations on Friday, which would bar Korea from receiving preferential treatment via simplified export procedures.
 

“The local stock market is currently volatile, due to several factors including a cut in the country’s economic growth outlook, pressure stemming from weak corporate performances, lowered anticipation surrounding the US-China trade war and the ongoing South Korea-Japan trade row,” Han Dae-hoon, an SK Securities analyst, said in a Tuesday note.

“Once Japan decides to take off South Korea from its whitelist and the trade row becomes a more long-term issue, then it will be inevitable for Seoul to further slash its economic growth outlook and the Kospi could plummet below the 2,000 mark,” he added.

Han noted the trade spat between Seoul and Tokyo as the main risk currently weighing on the market, as the Kospi had already taken other risks into account.

The benchmark Kospi has been struggling with global issues looming over the market for months, with its trading volume dropping to a 30-month low in July. Its daily average trading volume between July 1 and July 26 dropped to about 4.3 trillion won ($3.6 billion), which marks the lowest since January 2017, when the corresponding figure was 4.1 trillion won.

By Jung Min-kyung (mkjung@heraldcorp.com)