[MarketING] Cosmetics Stocks Soar as China Eases Quarantine Measures

[Asia Economy Reporter Song Hwajeong] Cosmetic stocks showed a strong rally following China's easing of quarantine measures. As China moves toward 'With Corona,' attention is expected to focus on the flow of Chinese reopening (resumption of economic activities) related stocks.

Cosmetic Stocks Rally in Unison on Winds from China

On the 22nd, cosmetic stocks surged sharply. Korea Cosmetics Manufacturing closed at the upper limit, while Cosmecca Korea rose 21.33%, Korea Cosmetics 20.82%, Coreana 14.85%, Tony Moly 13.75%, It's Hanbul 9.7%, Clio 8.81%, AmoreG 7.09%, and AmorePacific 6.39% respectively.

The news of China's quarantine easing led to a sharp rise in cosmetic stocks. The National Health Commission of China announced the day before that from January 8 next year, the highest level 'Category A' infectious disease quarantine measures applied to COVID-19 will be lifted and a 'Category B' management system will be applied. Accordingly, the mandatory facility quarantine for overseas arrivals will be abolished. Currently, China enforces a '5+3' policy requiring 5 days of facility quarantine and 3 days of self-quarantine for overseas arrivals. With this regulatory relaxation, overseas arrivals no longer need to stay in hotels or separate quarantine facilities but only need to undergo home quarantine or health monitoring for a certain period. Entry is allowed with a negative COVID-19 PCR test certificate obtained within 48 hours before departure, and the PCR test requirement after entering China will be abolished.

The easing of China's quarantine measures led to gains in Chinese reopening stocks, including cosmetics, driving the index higher that day. Kim Seokhwan, a researcher at Mirae Asset Securities, said, "Chinese consumer stocks such as cosmetics, travel, and duty-free showed overall strength, leading the stock market rise that day," adding, "As China transitions to With Corona and mentions an orderly recovery of overseas travel, expectations for demand improvement due to an increase in Chinese arrivals are reflected."

Jeon Jonggyu, a researcher at Samsung Securities, said, "Next year's Lunar New Year (Chunjeol) is likely to become a turning point for China's reopening and economic normalization," and forecasted, "If the COVID-19 outbreak in China peaks out in early to mid-January and the fatality rate remains lower than in advanced countries despite the massive population movement during Lunar New Year, demand recovery and economic rebound will occur relatively quickly."

However, attention should be paid to how much the reopening will translate into actual consumption by Chinese people. Han Jiyoung, a researcher at Kiwoom Securities, explained, "Despite the easing of 'Zero COVID' quarantine measures in major cities such as Beijing, Shanghai, and Shenzhen since December, the rebound in actual consumption and industrial economy seems not as strong as initially expected," adding, "From a short-term trading perspective, buying is valid, but mid- to long-term stock momentum depends on whether the actual increase in Chinese consumption translates into their earnings."

KOSPI and KOSDAQ Close Higher for Two Consecutive Days

[Image source=Yonhap News]

The KOSPI and KOSDAQ continued their upward trend for two consecutive days. Institutional investors' buying ahead of the ex-dividend date drove the index higher. The KOSDAQ recovered above the 700 level.

The KOSPI closed at 2,332.79, up 15.65 points (0.68%) from the previous day.

Institutional investors maintained their buying stance ahead of the ex-dividend date, leading the index rise. Institutions net purchased 1.098 trillion KRW worth of stocks. Foreign investors also showed buying interest with a net purchase of 50.2 billion KRW. Individual investors continued selling due to the major shareholder capital gains tax avoidance issue, net selling 1.133 trillion KRW. Individuals must reduce their stock holdings to a market value of 1 billion KRW or lower or lower their shareholding ratio to 1% for KOSPI and 2% for KOSDAQ by this day, two trading days before the closing day (29th), to avoid being classified as major shareholders.

Among the top market capitalization stocks, Samsung Electronics (0.35%), Samsung Biologics (0.73%), LG Chem (1.62%), Naver (1.40%), Kia (0.63%), and Celltrion (0.85%) rose, while LG Energy Solution (-0.11%) closed lower.

By sector, many indices showed strength, including Non-metallic Minerals (2.08%), Textiles & Apparel (2.04%), Chemicals (1.54%), Machinery (1.24%), and Construction (1.59%). On the other hand, Medical Precision (-2.18%), Electric & Gas (-0.95%), Securities (-0.09%), and Insurance (-0.61%) closed lower.

The KOSDAQ closed at 704.19, up 1.37%, recovering above the 700 level for two consecutive days. In the KOSDAQ market, foreign and institutional investors led the index rise with net purchases of 113.4 billion KRW and 302.9 billion KRW respectively. Individual investors net sold 410.3 billion KRW.