[MarketING] China Visa Issuance Halt Dampens China Reopening Stocks

Decline in Cosmetics and Duty-Free Sales Following China Visa Suspension
KOSDAQ Falls Below 700 as Market Turns Negative

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Chinese consumer-related stocks, which had been strong due to expectations of eased COVID-19 restrictions in China, showed a decline one after another. This is because China suspended the issuance of short-term visas to South Korean nationals as a retaliatory measure against South Korea's strengthened quarantine measures for arrivals from China.

Chinese Consumer Stocks Weaken Following Visa Suspension News

On the 10th, Chinese consumer-related stocks such as cosmetics and duty-free shops all showed weakness. Aekyung Industrial fell 5%, Clio 4.74%, Amorepacific 3.45%, LG Household & Health Care 3%, Paradise 2.27%, Hotel Shilla 2.22%, and Lotte Tour Development 1.77%, closing lower.

Kim Seokhwan, a researcher at Mirae Asset Securities, said, "The news that China is suspending the issuance of short-term visas to South Koreans increased downward pressure on the index," adding, "Cosmetics and duty-free consumer stocks related to China declined."

The Chinese Embassy in South Korea announced via its official WeChat account that, following domestic Chinese directives, from this day forward, the Chinese Embassy and Consulate General in South Korea will suspend the issuance of short-term visas for South Korean nationals visiting China for visits, commercial trade, tourism, medical treatment, and general personal reasons. Recently, the South Korean government, considering the rapid spread of COVID-19 infections in China, restricted the issuance of short-term visas and additional flights from China to South Korea and mandated COVID-19 testing before and after entry for arrivals from China. China's suspension of visa issuance is interpreted as a retaliatory measure against South Korea's strengthened quarantine policies.

Despite high expectations for China's reopening amid global economic downturn and concerns over U.S. monetary tightening, the recent surge in COVID-19 cases in China, subsequent quarantine reinforcements by various countries, and China's retaliatory measures against South Korea have forced a temporary pause in optimism toward Chinese consumer stocks. In the case of airline stocks, quarantine reinforcements by various countries against China are expected to delay the normalization of the air passenger market. Baek Gi-yeon, a researcher at Meritz Securities, said, "Although China lifted quarantine requirements for arrivals from the 8th, effectively opening the air passenger market, neighboring countries are strengthening their quarantine measures against China," adding, "The normalization of the air passenger market, initially expected in the second quarter of 2023, may be delayed until the fourth quarter."

KOSDAQ Falls Below 700 Again Due to Chinese Retaliation

Due to China's retaliatory measures, the KOSDAQ turned bearish after three days and fell below the 700-point mark. Not only cosmetics but also game and entertainment stocks showed weakness, pulling the KOSDAQ below 700.

On this day, the KOSDAQ closed at 696.05, down 5.16 points (0.74%) from the previous day. The KOSPI closed at 2,351.31, up 1.12 points (0.05%).

Most of the top market capitalization stocks closed lower, with game and entertainment stocks such as Kakao Games (down 3.01%), Pearl Abyss (down 2.45%), JYP Ent. (down 2.74%), and SM Entertainment (down 2.23%) showing declines exceeding 2%.

Individual investors alone net bought 289.3 billion KRW, but it was insufficient to offset sales by institutions and foreigners. On this day in the KOSDAQ market, institutions and foreigners net sold 216.7 billion KRW and 65.2 billion KRW, respectively.