China’s love for Korea’s stars lifted Kospi stocks

What do an alien love story, a boy band and the card game baccarat have in common?

They’re helping to attract record numbers of Chinese tourists to Korea - a boon for the $1.3 trillion economy and a stock market enjoying its third year of gains. Visitors from China rose 54 percent to 2.7 million in the first half, enticed by Korea’s hit television series “My Love From the Star,” K-Pop singers and an expanding casino industry.

The influx of Chinese shoppers is helping shield Korea’s economy from a stronger won and boosting President Park Geun-hye’s efforts to leverage pop-culture success into thriving fashion, cosmetics and services industries. AmorePacific, the face-cream maker whose ads include the female lead from “My Love,” surged 105 percent this year, while Hotel Shilla, which got 76 percent of sales from Chinese visitors in 2013, rose 92 percent.

“We’ve found the growth engine for the country’s consumption market,” Juhn Chong-kyu, a strategist at Samsung Securities, said. “Considering that this trend will continue for the next three to five years, it’s an investment opportunity you can have faith in.”

Korea’s biggest brokerage by market value has AmorePacific, Hotel Shilla, and casino-operator Paradise among its top stock picks, according to a July 29 report.

The success of “My Love” in China is the latest sign of Korean pop culture’s growing appeal overseas, after rapper Psy’s viral music video “Gangnam Style” and hits from K-pop bands such as Big Bang, which appeared in a Korea Tourism Organization ad called “Imagine Your Korea” and attracted 114 million views to their “Fantastic Baby” video on YouTube.

Chinese President Xi Jinping drew applause from students in Korea last month after citing “My Love” in a speech on ties between the two nations, the Xinhua News Agency reported. Views of the series, a romantic comedy about a beer-guzzling Korean actress in Seoul and a handsome alien who landed on Earth 400 years ago, have climbed to almost 2.7 billion on Chinese video-streaming site Iqiyi.com.

The show “got Korean drama booming again in the China market,” said Mike Suh, head of global business for CJ E&M, a Seoul-based media and games company. It plans to co-produce two Chinese language movies this year, he said.

Ji Jing, a 25-year-old from Beijing, traveled to Korea this month to visit filming locations for the show and buy cosmetics worn by the lead actress, Jun Ji-hyun. She said the strengthening Korean won, which trades about 0.9 percent away from a six-year high against the dollar, was no deterrent.

“I saved money for this trip,” Jing said. “I’d like to visit again.”

The Korean currency has appreciated 3.1 percent against the dollar this year, while the yield on three-year government notes has dropped 31 basis points, or 0.31 percentage point, to 2.56 percent. The benchmark Kospi index has gained 2.1 percent, versus a 7.3 percent advance in the MSCI Emerging Markets Index.

AmorePacific and its parent company are the two top-performing stocks in the MSCI All-Country World Consumer Staples Index this year. The Seoul-based firm posted a 52 percent jump in second-quarter earnings this month, spurring brokerages including Samsung Securities and IBK Securities to raise their price targets for the stock. The shares will probably climb another 9 percent during the next 12 months, according to the average of 21 analyst estimates compiled by Bloomberg.

Sales in China may grow to 30 percent of AmorePacific’s total by 2020 from 11 percent last year to make it the company’s second-biggest market after Korea, Chief Strategy Officer Kim Seung-hwan said in an e-mail interview. Chinese customers buy the company’s mascara and whitening creams at duty-free shops in Korea, along with AmorePacific’s Etude House and Laneige outlets in Hong Kong and China.

“Many girls may think their skin could be as good as those drama actresses’ if they switch to Korean cosmetics,” said Laurie Du, an analyst at consumer-research firm Mintel Group in Shanghai.

Hotel Shilla, part of the Samsung Group, gets more than 90 percent of its sales from duty-free shops. The proportion of revenue from Chinese tourists surged to 76 percent in 2013 from 58 percent in the previous year, according to an emailed statement from the company in May.

Paradise, the country’s biggest casino operator, climbed 40 percent in Seoul trading this year. Kangwon Land, a casino and hotel firm in Gangwon province, rose 12 percent after reporting a 32 percent gain in second-quarter net income. Korea approved construction of its first foreign-owned casino as part of efforts to lure more Chinese bettors and bolster the nation’s service industry, the tourism ministry said on March 18.

Slowing economic growth in China may curb the spending power of the nation’s consumers, while valuations for Korea’s cosmetics, duty-free and casino stocks are getting more expensive.

Retail-sales growth in the world’s most populous nation weakened to 12.2 percent from a year earlier in July, versus the five-year average of 15.6 percent. Asia’s biggest economy will probably expand 7.4 percent this year, the weakest pace since 1990, according to economist estimates compiled by Bloomberg.

AmorePacific shares are valued at 31 times estimated earnings for the next 12 months, versus an average multiple of 22 for global peers, according to data compiled by Bloomberg. Hotel Shilla’s ratio of 32 is almost three times that of the Kospi index.

The annual number of Chinese tourists to Korea will probably jump to 12 million by 2020 from 4.3 million in 2013, Baek Dami, a strategist at Hyundai Economic Research Institute, said.

Bloomberg