Of China, Korean Missile Defense and Makeup Sales

AmorePacific owns several internationally well-known cosmetics brands--especially among PRC buyers.

Whew! That post title is a bit of a mess, but believe me (Trump-style) it is accurate. A few weeks ago, I discussed the potential economic hit to South Korea from deploying the US-sourced THAAD missile defense system. The PRC does not want South Korea to deploy it on the Korean peninsula out of concern that its advanced detection capabilities potentially compromise China's military defenses. I like to think that South Koreans are a sensible sort not prone to provoking the Chinese without any sane reason...but maybe nuclear annihilation at the hands of North Korean crazies is just cause? Some (Chinese) people are being irrational and unreasonable IMHO.

At any rate, aside from the company that provided the land for the deployment of THAAD--Lotte--another Korean firm has had its business activities negatively affected as well to a significant extent. AmorePacific is the umbrella group of several top Korean makeup brands, which are all the rage here in Asia. Let's just say a PRC embargo on all things Korean as a result of the THAAD deployment has hit AmorePacific's bottom line...like a missile attack, in fact:

AmorePacific Corp, South Korea's biggest cosmetic company, reported a 58 percent slump in operating profit in the second quarter on Wednesday, as the once investor-darling bore the brunt of diplomatic tensions with China that dampened demand from Chinese tourists.

Chinese visitors, the largest population of the total tourists to South Korea, fell 66 percent in June from a year earlier, resulting in a significant plunge in the number of customers to domestic duty-free shops. Since mid-March, Beijing has banned travel agencies from selling trips to South Korea following Seoul's decision to deploy a U.S. missile system to counter North Korean threats, despite China's objections.

"Cosmetic giants such as AmorePacific tend to rely on profits produced from duty-free stores," said Cho Yong-sun, an analyst at HMC Investment Securities.

The gist of it is that PRC package tours to Korean have been discouraged by the government, resulting in the droves of Chinese tourists buying makeup at Korean duty-free outlets to drop precipitously. While unfair in many respects, you do have to wonder why such a major cosmetics group is so dependent on a certain type of foreign visitor to account for so much of their revenues.

Amorepacific, diversification would be good for you.