China-linked shares rise as Covid rules are relaxed a bit

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China-linked shares rise as Covid rules are relaxed a bit

A Sulwhasoo branch in China [AMOREPACIFIC]

A Sulwhasoo branch in China [AMOREPACIFIC]

 
Cosmetics and duty-free stocks are rising as China, one of their biggest markets, eases some Covid-19 restrictions — and Chinese tentatively prepare to return to a more normal life.
 
Shares of Amorepacific rose 6.08 percent to 139,500 won ($107.80) on Monday. LG Household & Health Care rose 6.72 percent to 715,000 won and Aekyung rose 6.95 percent to 20,000 won.
 
The rises follow expectations that spending in China will increase if more people are allowed to resume normal lives.
 
Starting Monday, a negative polymerase chain reaction (PCR) test taken within 48 hours is no longer required for people riding public transportation in major cities including Shanghai and Beijing. Shanghai now also doesn’t require a negative test result to enter outdoor public venues such as parks.
 
The easing of restrictions for public transport was instituted in Hangzhou, Wuhan and Zhengzhou on Dec. 4 and for Shenzhen on Dec. 3.  
 
“China’s zero-Covid policy has been hurting consumer spending, with cosmetics purchases falling and cosmetics exports to China decreasing as well,” said Cho So-jung, an analyst at Kiwoom Securities. “Local cosmetics companies’ Chinese subsidiaries suffered and original development manufacturers also struggled as orders from Chinese cosmetics companies also fell.”
 
In the third quarter, China’s imports of Korean cosmetics fell 22.4 percent on year to $2.79 billion, according to the Korea Health Industry Development Institute.
 
Amorepacific’s Chinese sales fell 40 percent on year in the third quarter, a big blow to the company because Chinese sales make up more than 50 percent of its Asian sales. LG Household & Health Care’s Chinese sales also fell, down 31 percent on year.
 
“Companies like Amorepacific are big in China in duty-free, online and retail sales, and its profits are expected to rebound when Chinese spending picks up after Covid-19 restrictions ease,” said analyst Cho.
 
Shares in duty-free companies, which rely heavily on Chinese customers, also rose. Hotel Shilla, which operates Shilla Duty Free, rose 5.26 percent to 80,000 won. Shinsegae, operating Shinsegae Duty Free, rose 5.15 percent to 224,500 won.
 
Apparel is another sector that welcomed the easing of restrictions. Shares of F&F, which owns brands such as MLB, rose 6.98 percent to 161,000 won on Monday. A big portion of its sales comes from the Chinese market. Of revenues of 441.7 billion won in the third quarter, 202 billion won came from China. 
 
“Clothes purchases surged after Korea lifted its pandemic restrictions in the first quarter, and a similar situation will happen in China when local Covid-19 restrictions ease and more outdoor activities are encouraged,” said Jung Hea-jin, an analyst at Hyundai Motor Securities.

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]
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