Rotation Market Trend, This Time in Distribution, Cosmetics, Duty-Free, and Travel Sectors

Following the surge in securities and petrochemical stocks, this week sees strength in distribution, cosmetics, and duty-free sectors
"Expectations of economic recovery boost rotation"

Travel stocks, which had bottomed out, also show a brief rally
"Short-term rotation response by sector and stock"

[Asia Economy Reporters Joo-yeon Oh and Min-woo Lee] As the domestic stock market hits new highs, a sector-by-sector rotation rally continues. While profit-taking is occurring in stocks that have surged, buying interest is shifting to relatively less-risen sectors, keeping the index's upward rally intact. Recently, expectations for vaccine development and economic recovery have outweighed concerns about the novel coronavirus (COVID-19), leading to a rotation process centered on cyclical stocks. After sharp rises in securities, petrochemical, and insurance stocks last week, this time distribution, cosmetics, and duty-free stocks have engaged in so-called 'gap filling.' Travel stocks, which had bottomed out, also saw a surprise rebound.

According to the Korea Exchange on the 13th, distribution stocks, which had struggled to recover from the direct hit of COVID-19 and showed slower gains compared to other sectors even in a bull market, have belatedly joined the rally. Emart had been stuck in a box range of 100,000 to 120,000 won for four months, hovering near the bottom even during the rebound after COVID-19. It failed to gain momentum even during the second-quarter earnings-driven upswing. Expectations for earnings were postponed to the second half due to the overall sluggishness of large supermarkets. Although some analyses suggested it could be approached as a bargain buy, the stock price was unimpressive. However, the trend changed in the past week. Supported by the sharp rise in the stock market, investment sentiment toward Emart appears to have recovered. The closing price on the 7th was 113,500 won, which rose to 125,500 won by the previous day's close, marking a 10.57% increase in just three trading days. Emart’s stock price rose 8.06% in June.

CJ broke its long silence with a 12% intraday surge the previous day. While the KOSPI rose about 8% from 2,000 to 2,250 points in June and July, CJ’s stock price hovered between 80,000 and 90,000 won and even fell 12%. However, with CJ CheilJedang’s surprise earnings and business plans coinciding, it quickly broke out of the box range. As of 10:15 a.m. that day, CJ continued its upward trend, rising 2%.

Cosmetics stocks have also entered a clear uptrend this month. LG Household & Health Care closed at 1,354,000 won on the 3rd but soared to 1,597,000 won by 9:15 a.m. that day. On the 11th, it reached 1.6 million won for the first time ever. AmorePacific is also on the rise, recording 188,000 won at the same time from 160,500 won on the 3rd. This represents about a 17.1% increase this month. During the same period, Kolmar Korea also rose 13.5%, showing a general upward trend. This is why analysts say that the rotation rally, which has passed through sectors like untact (non-face-to-face) and secondary batteries, is now approaching cosmetics and distribution stocks.

The cosmetics sector had been sluggish in recovery due to the impact of COVID-19. After the KOSPI hit its lowest point in 11 years at 1,439.43 on March 19, it rose about 56% until the end of last month, but AmorePacific’s stock price increased by only 4% during this period. This was because duty-free shops closed due to COVID-19, eliminating related sales, and consumer sentiment deterioration also hit general retail sales. LG Household & Health Care showed a trend similar to the KOSPI’s rise, but this was because the poor cosmetics sales were offset by a surge in household goods sales.

Along with cosmetics stocks, duty-free stocks are also stirring. Hotel Shilla rose to 78,600 won early in trading that day, up 1.68% from the previous day and 13.4% from the closing price on the 3rd. Shinsegae also rose 10.6% during the same period. Seong Jun-won, a researcher at Shinhan Financial Investment, said, "Last weekend, the number of airport users in the U.S. reached its highest since mid-March, causing local hotel and cosmetics-related stocks to rise significantly, which seems to have influenced domestic cosmetics stocks as well." He added, "Positive sentiment is emerging in the cosmetics sector as forecasts suggest duty-free sales will improve due to Chinese holidays such as the Mid-Autumn Festival in September and National Day in October."

Foreign investors have also shown buying interest. Since the beginning of this month until the previous day, foreigners purchased 116.2 billion won worth of LG Household & Health Care and 77.4 billion won of AmorePacific. These amounts rank first and fifth, respectively, among foreign net purchases this month. Hotel Shilla has also started accumulating shares, recording net purchases on all days except the 3rd and 10th, totaling 17.9 billion won.

Travel stocks, representative contact stocks, also saw a brief rise in a market where the index had risen mainly on untact-related stocks. Modetour and Hanatour rose 15.38% and 12.62%, respectively, since the beginning of this month.

Lee Kyung-min, a researcher at Daishin Securities, said, "As economic activities resume and expectations for economic recovery in the second half increase, a rotation pattern is emerging. Until this cycle weakens or breaks, attempts to rise based on abundant liquidity are expected to continue." However, he noted that valuation burdens are increasing and the gap with fundamentals is widening during this process, suggesting that it is necessary to focus on short-term rotation responses by sector and stock rather than chasing purchases at this point. He added, "A neutralization strategy is needed, increasing the proportion of sectors and stocks that have undergone short-term corrections and reducing the proportion of those that have surged."

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