Entertainment Stocks Suffering from Chinese Regulations... Market Sees "Buying Opportunity at Low Prices"

Sharp Decline Continues After Late August China Regulations Announcement
Strong Earnings Growth Expected with 'With Corona'... Ample Potential

[Asia Economy Reporter Minwoo Lee] Since the end of last month, when regulations related to idols were introduced in China, entertainment stocks have struggled to maintain their value. However, analysis suggests that these are not newly established regulations and their effectiveness is expected to be limited. Rather, it is seen as an opportune time for bottom-fishing ahead of the ‘with COVID’ era, as the COVID-19 situation eases.

According to the Korea Exchange on the 16th, YG Entertainment’s closing price fell by 12.17% from the 27th of last month to the day before. During the same period, JYP Ent. and SM Entertainment also dropped by 8.18% and 8.56%, respectively. This contrasts with the KOSPI and KOSDAQ indices, which rose by 0.62% and 1.88%, respectively, over the same period. Even HYBE, which had performed relatively well due to recent surges, fell by 1.76%, significantly underperforming the index gains.

This decline is attributed to the Chinese authorities’ intensified regulations on the entertainment sector starting from the 27th of last month. On that day, the Cyberspace Administration of China (CAC) announced ten measures to strengthen the management of ‘disorderly fandoms,’ including banning the publication of celebrity popularity rankings and disbanding fan clubs that promoted celebrity fundraising. Subsequently, on the 2nd, the National Radio and Television Administration, China’s broadcasting regulatory body, issued a notice on strengthening management of literary and artistic programs and related personnel, releasing a series of celebrity regulations. These included a complete ban on broadcasting appearances by celebrities who caused social issues, prohibitions on high appearance fees, and restrictions on activities of male idols with feminine appearances. Following this, the Chinese social networking service Weibo suspended 21 Korean celebrity fan club accounts for 30 days, citing the spread of irrational celebrity worship and support.

However, the market views this not simply as a negative factor but as an opportunity. With concerns over COVID-19 spread diminishing and vaccination rates rising, the ‘with COVID’ era is coming into sight, making it an ideal time to buy stocks of entertainment agencies that can begin to recover their earnings in earnest.

Lee Ki-hoon, a researcher at Hana Financial Investment, stated, "Since the name of China’s regulation is ‘strengthened management,’ it is not a newly established regulation. BTS has repeatedly been targeted by such regulations, but their performance remained solid." He added, "Currently, album sales account for a large portion of profits, so while China-originated regulations may be a short-term negative, in the ‘with COVID’ era, as celebrity management sales resume, the proportion of China-related revenue will decrease, so it is not a major concern in the mid to long term." He further noted, "As the ‘with COVID’ era approaches, rather than a weakening of investment sentiment due to China, momentum will be highlighted in platforms, performances, and debut of new groups targeting overseas markets such as the U.S. and Japan."

The transformation of the entertainment industry by integrating with platforms was also highlighted as a noteworthy point. An Jin-ah, a researcher at eBest Investment & Securities, explained, "As the time spent in online virtual reality increases, demand for consuming various forms of content in a complex manner is gradually growing, leading the entertainment and media industries to cross boundaries and converge content, with platforms emerging to accommodate this." She analyzed, "In the case of SM Entertainment, which is currently pursuing the sale of its largest shareholder’s stake, whether it partners with Kakao or CJ ENM, it will be able to generate various synergistic effects."

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