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South Korean beauty firms flourish as hopes rise of end to China sanctions

Stocks of major South Korean cosmetics and duty-free operators traded higher yesterday amid hopes that China may lift its retaliatory economic measures under way for years against Seoul’s decision to deploy a US anti-missile system there.

AmorePacific, the country’s largest cosmetics maker, closed at 232,000 won (US$200), up 5.22 per cent from the previous session’s close, after touching as high as 236,000 won, the highest mark since April 24 last year.

Shares in LG Household & Health Care, the second-largest homegrown beauty giant, finished at 1,404,000 won, up 4.54 per cent from the earlier session’s close, after touching 1,425,000 won, the highest since April 30.

“We are expecting a gradual recovery of the cosmetics sector, with signs of a growth in the Chinese high-end cosmetics market,” said Na Eun-chae, an analyst at Korea Investment & Securities.

“In the past two to three years, Sulwhasoo and Hera have expanded retail and marketing in China,” referring to two of AmorePacific’s premium brands.

Na expected AmorePacific’s sales in 2020 to rise 10.5 per cent to 6.2 trillion won and the firm’s operating profit to soar 31.1 per cent to 586 billion won.

KTB Investment & Securities analyst Bae Song-yi estimated the beauty product maker’s yearly sales to grow 9.4 per cent to 6.1 trillion won and its annual operating profit to gain 29 per cent to 583 billion won.

With an expected rise in demand from Chinese travellers, South Korean duty-free operators also continued to build up gains.

Shinsegae, a major duty-free operator, closed up 4.58 per cent at 262,500 won, after rising to a yearly high of 265,500 won.

Lotte Shopping, another major duty-free operator, also advanced 5.06 per cent to a yearly high of 135,000 won from the previous session’s close.

The advance in cosmetics and retailer stocks was fuelled largely by rising speculation that Chinese President Xi Jinping will visit Seoul as early as March and move to relieve economic sanctions that have been hurting China-exposed companies.

Last week, South Korean President Moon Jae-in struck an upbeat note on Seoul’s relationship with Beijing in his address for the New Year, saying Xi and Chinese Premier Li Keqiang are scheduled to visit South Korea this year.

South Korea’s cosmetics industry had enjoyed robust growth until 2016, helped by “hallyu,” or the Korean Wave, referring to the growing popularity of Korean pop culture abroad.

Exports of South Korean goods to China, its largest buyer, have shrunk drastically since 2017 as the Chinese government imposed economic sanctions over Seoul’s deployment of the Terminal High Altitude Area Defense (THAAD) system.

In its latest sign of sanctions easing, a 5000-strong incentive-travel group from a Chinese health food company visited South Korea last week, marking the largest incentive travel by a company since 2017.

The number of inbound visitors to South Korea reached the 17.25 million mark last year, surpassing the previous annual record of 17.24 million set in 2016.

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