Cosmetics Stocks Also Benefit Significantly from the 'Yang Jiechi Effect'

Rising Trend Accompanies Expectations of Warm Winds Between Korea and China

[Asia Economy Reporter Oh Ju-yeon] Domestic cosmetics stocks soared in unison following news of the visit to South Korea by the head of China's diplomatic command. Through this visit, discussions are expected on Korea-China cooperation regarding the novel coronavirus infection (COVID-19), as well as revisiting the issue of Chinese President Xi Jinping's visit to South Korea, which was temporarily postponed due to COVID-19. This has drawn attention to domestic cosmetics companies awaiting recovery in the Chinese market.

According to the Korea Exchange on the 20th, Chinese consumer stocks stirred upon news that Yang Jiechi, a member of the Political Bureau of the Chinese Communist Party responsible for diplomacy, will visit Busan from the 21st to 22nd at the invitation of Seo Hun, Director of the National Security Office. Among these, the rise in cosmetics stocks was particularly notable.

It’s Hanbul surged 27.35% intraday the previous day, hitting a 52-week high. The closing price of It’s Hanbul was 8,150 won on March 19, but starting in July, the stock price began to rise sharply, closing at 36,350 won on the 19th, up 346.01%. Korea Kolmar Holdings also closed up 8.14% at 31,900 won compared to the previous trading day, while Tony Moly (8.17%), Korea Cosmetics (6.91%), and Korea Cosmetics Manufacturing (7.81%) all rose as well.

Although second-quarter earnings were weak due to the impact of COVID-19, improvements are expected from the second half of the year. Additionally, since the business conditions in the third and fourth quarters of last year were difficult, a base effect that contrasts with that period is also anticipated. LG Household & Health Care showed a slight gain following a 1.27% rise the previous day.

Researcher Baesong from KTB Investment & Securities explained, "Investment sentiment toward Korean cosmetics brand companies is expected to improve for the time being," adding, "Especially, LG Household & Health Care, which ranks at the top of the preferred list for Botaerisang (daigou), is expected to benefit."

Researcher Bae further noted, "While the Chinese cosmetics consumption market has not fully recovered, demand for overseas luxury brands, which are in strong demand, has increased among daigou buyers," and predicted, "As the competition intensity among global luxury brands eases in the second half, the growth rate of Korean brands in China is expected to accelerate."

AmorePacific, despite the prolonged COVID-19 situation making a rebound in duty-free and offline store sales difficult in the second half, was highly rated for improving its business structure in line with the Chinese government's promotion of domestic duty-free channels. AmorePacific also rose 3.12% compared to the previous trading day, climbing alongside other cosmetics stocks following the news of Yang Jiechi's visit.

Han Dae-hoon, a researcher at SK Securities, commented on Yang Jiechi's visit, saying, "As he oversees China's foreign policy, discussions on President Xi's visit within this year are expected to accelerate," and assessed, "During the rotation process, funds may continue to flow into stocks that have been excessively sold."