How China’s Love for Alien TV Comedy Lifted Kospi: Korea Markets

Aug 19, 2014 3:44 am ET

Aug. 19 (Bloomberg) -- What do an alien love story, a boy band and the card game baccarat have in common?

They’re helping to attract record numbers of Chinese tourists to South Korea -- a boon for the $1.3 trillion economy and a stock market enjoying its third year of gains. Visitors from China rose 54 percent to 2.7 million in the first half, enticed by Korea’s hit television series “My Love from the Star,” K-Pop singers and an expanding casino industry.

The influx of Chinese shoppers is helping shield Korea’s economy from a stronger won and boosting President Park Geun Hye’s efforts to leverage pop-culture success into thriving fashion, cosmetics and services industries. Amorepacific Corp., the face-cream maker whose ads include the female lead from “My Love,” surged 105 percent this year through yesterday, while Hotel Shilla Co., which got 76 percent of sales from Chinese visitors in 2013, rose 92 percent.

“We’ve found the growth engine for the country’s consumption market,” Juhn Chong Kyu, a strategist at Samsung Securities Co. in Seoul, said by phone on Aug. 13. “Considering that this trend will continue for the next three to five years, it’s an investment opportunity you can have faith in.”

Korea’s biggest brokerage by market value has Amorepacific, Hotel Shilla, and casino-operator Paradise Co. among its top stock picks, according to a July 29 report.

Xi Speech

Amorepacific and Hotel Shilla both climbed 3.9 percent to records today in Seoul, while Paradise added 0.4 percent. The benchmark Kospi index rose 0.9 percent.

The success of “My Love” in China is the latest sign of Korean pop culture’s growing appeal overseas, after rapper Psy’s viral music video “Gangnam Style” and hits from K-pop bands such as Big Bang, which appeared in a Korea Tourism Organization ad called “Imagine Your Korea” and attracted 114 million views to their “Fantastic Baby” video on YouTube.

Chinese President Xi Jinping drew applause from students in Korea last month after citing “My Love” in a speech on ties between the two nations, the Xinhua News Agency reported. Views of the series, a romantic comedy about a beer-guzzling Korean actress in Seoul and a handsome alien who landed on Earth 400 years ago, have climbed to almost 2.7 billion on Chinese video- streaming site iqiyi.com.

The show “got Korean drama booming again in the China market,” said Mike Suh, head of global business for CJ E&M Corp., a Seoul-based media and games company. It plans to co- produce two Chinese language movies this year, he said.

Top Performers

Ji Jing, a 25-year-old from Beijing, traveled to Korea this month to visit filming locations for the show and buy cosmetics worn by the lead actress, Jun Ji Hyun. She said the strengthening Korean won, which trades about 0.9 percent away from a six-year high against the dollar, was no deterrent.

“I saved money for this trip,” Jing said. “I’d like to visit again.”

The Korean currency has appreciated 3.1 percent against the dollar this year, while the yield on three-year government notes has dropped 31 basis points, or 0.31 percentage point, to 2.56 percent. The Kospi index has gained 2.1 percent, versus a 7.3 percent advance in the MSCI Emerging Markets Index.

Chinese travelers are also increasingly choosing Korea over neighboring countries amid territorial tensions in the South China Sea, Wai Ho Leong, a Singapore-based economist at Barclays Plc, said in an Aug. 13 phone interview.

Amorepacific Rally

Anti-Chinese riots spread across Vietnam in May after China placed an oil rig in disputed waters off the Southeast Asian country’s coast. Chinese visitors to Vietnam dropped about 30 percent in June from the previous month, according to Vietnam’s General Statistics Office.

China has been carrying out construction on some islands and shoals claimed by the Philippines and plans to erect five lighthouses there. A disagreement with Japan over the sovereignty of a group of uninhabited islets sparked protests across China in 2012.

While China and Korea both argue that Socotra Rock, an underwater structure off Korea’s southwestern coast, is part of their exclusive economic zones, the dispute has so far failed to ignite public ire.

Amorepacific and its parent company are the two top- performing stocks in the MSCI All-Country World Consumer Staples Index this year. The Seoul-based firm posted a 52 percent jump in second-quarter earnings this month, spurring brokerages including Samsung Securities and IBK Securities Co. to raise their price targets for the stock. The shares will probably climb another 9 percent during the next 12 months, according to the average of 21 analyst estimates compiled by Bloomberg.

Actress Skin

Sales in China may grow to 30 percent of Amorepacific’s total by 2020 from 11 percent last year to make it the company’s second-biggest market after Korea, Chief Strategy Officer Kim Seunghwan said in an e-mail interview. Chinese customers buy the company’s mascara and whitening creams at duty-free shops in Korea, along with Amorepacific’s Etude House and Laneige outlets in Hong Kong and China.

“Many girls may think their skin could be as good as those drama actresses’ if they switch to Korean cosmetics,” said Laurie Du, an analyst at consumer-research firm Mintel Group Ltd. in Shanghai.

Hotel Shilla, part of Samsung Group, gets more than 90 percent of its sales from duty-free shops. The proportion of revenue from Chinese tourists surged to 76 percent in 2013 from 58 percent in the previous year, according to an e-mailed statement from the company in May.

Relative Value

Paradise, the country’s biggest casino operator, climbed 40 percent in Seoul trading this year. Kangwon Land Inc., a casino and hotel firm in Gangwon province, rose 12 percent after reporting a 32 percent gain in second-quarter net income. Korea approved construction of its first foreign-owned casino as part of efforts to lure more Chinese bettors and bolster the nation’s service industry, the tourism ministry said on March 18.

Slowing economic growth in China may curb the spending power of the nation’s consumers, while valuations for Korea’s cosmetics, duty-free and casino stocks are getting more expensive.

Retail-sales growth in the world’s most-populous nation weakened to 12.2 percent from a year earlier in July, versus the five-year average of 15.6 percent. Asia’s biggest economy will probably expand 7.4 percent this year, the weakest pace since 1990, according to economist estimates compiled by Bloomberg.

China Visas

Amorepacific shares are valued at 31 times estimated earnings for the next 12 months, versus an average multiple of 22 for global peers, according to data compiled by Bloomberg. Hotel Shilla’s ratio of 32 is almost three times that of the Kospi index, while Paradise trades at 23 times, or 34 percent more than global peers.

“Casino-related stocks are definitely getting more and more expensive,” Emalee Jin, a Seoul-based analyst at LIG Investment & Securities Co., said by phone on Aug. 14. “But we’re seeing more upside as the government measures are supportive and there is further growth momentum.”

Heo Pil Seok, the chief executive officer at Midas International Asset Management Ltd., holds shares of casino operators and Hotel Shilla because he’s betting the companies’ earnings growth will justify gains in the shares.

The annual number of Chinese tourists to Korea will probably jump to 12 million by 2020 from 4.3 million in 2013, Baek Dami, a strategist at Hyundai Economic Research Institute in Seoul, said by phone yesterday.

Korea will start taking electronic visa applications from Chinese tourists in the first quarter of next year and create a Chinese-language TV channel, the finance ministry said in an Aug. 12 statement. The countries announced plans last month to start direct trading between the won and the yuan, while Xi said he will accelerate free-trade talks with Korea.

“The government’s plan is inevitably good news for the stock market,” Kim Yoon Jin, a Seoul-based analyst at Daishin Securities Co., said by phone on Aug. 13. His stock recommendations include Hotel Shilla, Paradise, and Grand Korea Leisure Co., a Seoul-based casino operator. “The measures show the government’s willingness to lure more China tourists.”

--With assistance from Kyoungwha Kim in Singapore and Liza Lin in Shanghai.