Stocks Fall Under 1,800 Due to Shanghai Shock

The benchmark stock market was reeling yesterday due to the sharp drop in China’s benchmark Shanghai Composite Index.

Korea’s KOSPI fell 34.58 points (1.91 percent) from Monday to close at 1,774.38. The tech-heavy KOSDAQ dropped 10.99 points (1.73 percent) to 626.01.

All sectors on the KOSPI suffered drops, with medical apparatuses suffering the biggest of 3.62 percent, followed by transportation equipment (3.31 percent) and transport and storage (2.83 percent). Net selling by foreigners reached 274.9 billion won and that of institutional investors 53.3 billion won. Individual investors net bought 314.6 billion won.

The Shanghai Composite Index tumbled 7.72 percent, taking down other stock markets in Asia. The index fell 257.34 points from Friday to close at 3,072.33.

Along with surging oil prices, the announcement of the People`s Bank of China on raising the bank reserve requirement ratio contributed to the drop in the Shanghai stock market. The central bank announced Saturday that it will raise the ratio on June 15 and June 25 by 50 basis points to 17.5 percent. The market suffered a big loss since it headed into a holiday Monday.

Shim Jae-yeop, head of investment strategy at Meritz Securities in Seoul, said, “Investor confidence has rapidly cooled since the Chinese government has maintained a tight monetary policy and announced that it will keep controlling the prices of petrochemical products, regardless of surging international oil prices.”

Japan’s Nikkei Stock Average fell 1.13 percent and the weighted price index of the Taiwan Stock Exchange slipped 2.53 percent. The Vietnam Stock Index also fell 1.61 percent.

aryssong@donga.com larosa@donga.com