As Wuhan Lockdown Lifts... Chinese Stocks 'Surge'

Recovery Outlook for Consumer Sentiment in the Chinese Market
Its Hanbul and Tony Moly Rise Over 30%
Automobile and Entertainment Stocks Lead the Surge

[Asia Economy Reporter Oh Ju-yeon] As the number of confirmed cases in China, the origin of the novel coronavirus infection (COVID-19), has been declining this month and the Wuhan lockdown has been lifted, Chinese consumer-related stocks are rapidly rising. However, rather than sectors directly linked to Chinese people entering Korea, such as duty-free shops, differentiated increases are occurring mainly in sectors that can benefit from increased consumption within China, such as cosmetics, automobiles, steel, and entertainment.

According to the Korea Exchange on the 13th, as of the 10th, the cosmetics sector rose 7.0% compared to the previous week. NH Investment & Securities analyzed that the spread of COVID-19 in China, the largest market for domestic cosmetics companies, has entered a calming phase, and consumer sentiment in the Chinese market is expected to recover, leading to a rise in the sector index due to positive expectations for performance improvement from the second quarter onward. In particular, low-priced buying inflows were seen in small and medium-sized companies whose stock prices had fallen excessively.

Among the cosmetics sector, the stock that rose the most this month is It’s Hanbul. The closing price on the 1st was 10,350 KRW, and as of 9:30 AM on this day, it rose 38.2% to 14,300 KRW. Tony Moly rose 32.1% from 8,100 KRW to 10,700 KRW during the same period, and Hankook Cosmetics increased 25.9% from 11,750 KRW to 14,800 KRW. The leading cosmetics stock, LG Household & Health Care, jumped 12.0% from 1,071,000 KRW to 1,199,000 KRW.

This is interpreted as consumption gradually recovering, such as a surge in online sales of cosmetics as the COVID-19 situation in China enters a calming phase. Especially in a situation where domestic and international movement is restricted, the local market share has become more important than the duty-free shop share. Although interest in Chinese consumer-related stocks is growing as Chinese consumption normalizes, selective investment is necessary.

Mi-jin Cho, a researcher at NH Investment & Securities, predicted, "With the recovery of consumption in China, LG Household & Health Care is expected to improve its performance from the second quarter onward, and Cosmax is attracting attention for the rapid recovery of its Chinese subsidiary and its unique competitiveness."

The steel sector is also rebounding in anticipation of the recovery of the Chinese economy. Among them, POSCO announced on the 10th that it decided to enter into a trust contract for the acquisition of treasury stocks worth 1 trillion KRW, causing its stock price to surge. POSCO’s stock price rose 20.6% from 155,000 KRW on the 1st to 187,000 KRW on this day. Hyundai Steel also rose 19.5% from 16,900 KRW to 20,200 KRW during the same period.

The general outlook in the securities industry is that steel companies’ stock prices will partially recover after the COVID-19 crisis. However, it is pointed out that the current temporary demand cliff has been faced, and a demand slump due to an economic recession may follow, which cannot be overlooked.

The automobile sector, which had fallen sharply, has also lifted its head with the recovery of Chinese consumption. The decline in demand in the Chinese market, which was hit hard by COVID-19, is gradually shrinking, and future demand stimulation measures by the Chinese government are expected, leading to a forecast of recovery in automobile sales. Hyundai Motor’s stock price rose 14.9% from 85,400 KRW on the 1st of this month to 98,100 KRW on this day.

Entertainment stocks, which had been excited by expectations for the lifting of the Hanbanryeong (Korean Wave restriction order) in China this year, fell together due to COVID-19 but have recently taken flight again. SM Entertainment rose 24.3% from 20,350 KRW on the 1st to 25,300 KRW on this day, YG Entertainment increased 26.8% from 23,100 KRW to 29,300 KRW, and JYP Ent. rose 16.7% from 17,350 KRW to 20,250 KRW during the same period.

Jong-dae Park, a researcher at Hana Financial Investment, said, "While the COVID-19 crisis is spreading globally, only China and Korea are stabilizing worldwide, so differentiated stock momentum is expected. However, since the impact on companies and their earnings varies greatly depending on COVID-19, detailed analysis is necessary."

This content was produced with the assistance of AI translation services.