[Asia Economy Reporter Lee Jung-yoon] Expectations for reopening benefits on cosmetics stocks are diminishing due to the spread of COVID-19 in China.
According to the Korea Exchange on the 30th, Amorepacific closed at 159,000 KRW in the previous trading session, down 16.66% compared to early this month. Korea Kolmar and Cosmax recorded 43,600 KRW and 81,300 KRW respectively, falling 5.16% and 6.64% during the same period.
Cosmetics stocks were analyzed to be prime beneficiaries of reopening. The easing of social distancing measures increases outdoor activities, and news that the Presidential Transition Committee is considering abolishing the outdoor mask mandate while maintaining it indoors also influenced expectations. It is predicted that removing masks will increase demand for cosmetics accordingly.
Furthermore, following the closing of the Beijing Winter Olympics on the 20th of last month, consumption improvement was expected to boost exports. This is based on the analysis that the strong zero-COVID policy would be relaxed. China accounts for more than half of domestic cosmetics export volume.
However, the spread of COVID-19 in China is hindering progress. Shanghai health authorities announced lockdowns based on the Huangpu River dividing the city: the eastern Pudong area from the 28th to the 31st of this month, and the western Puxi area from the 1st to the 4th of next month. Earlier, Shenzhen in Guangdong Province was locked down from the 14th to the 20th of this month, and Changchun, the capital of Jilin Province, was also under city control. These city lockdown policies in China have impacted the duty-free sector. The domestic cosmetics duty-free market size in January this year decreased by 23% compared to the same period last year and has continued to weaken since.
So Jeong Cho, a researcher at Kiwoom Securities, explained, "For cosmetics stocks, the influence of overseas tourists and daigou (Chinese personal shoppers) is greater than domestic reopening expectations," adding, "Although stock prices rose for a while due to eased self-quarantine measures upon entry and exit, expectations for the duty-free sector have declined as COVID-19 cases increased in China." She continued, "Until the second quarter of this year, we need to observe how much COVID-19 spreads in China and what measures will be taken," but added, "Chinese President Xi Jinping’s third term is expected to be decided around October this year, and it is anticipated that he will highlight the minimal impact of COVID-19 as one of his achievements, making it likely that the zero-COVID policy will be maintained."
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