In South Korea, cosmetics are the new smart investment as heavy industry lags

It’s not about looking younger, the 49-year-old head of Daishin Asset Management Co. says. Seo is trying to get first-hand insight into one of South Korea’s hottest stock-market bets: the cosmetics industry.

Earnings growth is fueling the rally. Amorepacific, the nation’s largest cosmetics company, reported a 42 percent jump in 2014 net income. The producer of brands such as Etude and Mamonde has risen 158 percent in Seoul trading over the past year, making it the best performing stock in the beauty and personal care sector globally, data show. LG Household, Korea’s second-biggest cosmetics firm, has advanced 75 percent.

The growing importance of cosmetics companies is luring analysts from traditional sectors such as heavy industry, said Yang Ki In, the head of research at Shinhan Investment in Seoul.

Chinese rivals

“We have to readjust our research resources with the times,” Yang said by phone on April 2. “It used to be that analysts covering heavy industry were the most popular and well-paid. But those industries are now losing to Chinese rivals, and we’re seeing growth in other sectors like cosmetics that are actually benefiting from China.”

Shipbuilders, which former President Park Chung Hee promoted in the 1970s, were the worst-performing stocks on the Kospi last year as orders dwindled. Hyundai Heavy Industries Co., Korea’s fourth-largest company by market capitalization at its peak in April 2011, now ranks 24th after losing about $30 billion in value. Amorepacific has leapfrogged to 12th place from 48th in 2011 and LG Household is 17th.

Asian demand

The number of Chinese tourists to Korea last year surged 42 percent to 6.1 million, according to the Korea Tourism Organization. More than 70 percent of the visitors’ shopping budget was spent on cosmetics in 2013, according to Iris Park, the analyst Daiwa hired to cover the sector.

Korean television programs such as Get it Beauty, a makeup and skin care advice show that’s hosted on the Chinese online-video site, help fuel demand for the nation’s products, according to Park. Korean brands are also “better attuned” to the particular demands of Asian consumers than global competitors such as L’Oreal SA, Park wrote, assigning a positive outlook for the industry.

For Oh Sung Sik, chief investment officer for Korean equities at Franklin Templeton Investments in Seoul, cosmetic stocks look overheated.

Gender equality

“Long lines at duty-free shops don’t justify the current price levels,” Oh said on April 1. “I see some herd instinct in the market.”

Getting to grips with female beauty products may be a challenge for investors in a country with one of the largest divisions in gender equality. South Korea ranks 117th among 142 countries surveyed in the World Economic Forum’s annual 2014 Global Gender Gap Report, behind Qatar, India and Liberia.

For Daishin’s Seo, the effort is worth it.

“Understanding women and acknowledging their growing power is a key to success in investment now.”


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