Korean Stocks Tied to Chinese Tourists Slump on Concern of Curbs

(Bloomberg) -- South Korean stocks that rely on Chinese tourists slumped on concern local governments on the mainland are trying to limit the flow of visitors to the peninsula amid rising tension over a missile-defense system.

Cosmetics companies Amorepacific Corp. and LG Household & Health Care Ltd. were among the biggest decliners on the Kospi gauge as Kim Yeong-ju, an official at the Korea Tourism Organization in Seoul, said that Chinese authorities are ordering travel agents to curb cheap travel packages to South Korea from November to April 2017. The comments followed a report in JoongAng Ilbo, a Seoul newspaper, that said travel agents had been instructed to cut the number of tourists by more than 20 percent.

“The issue is painful,” said Seung-jun Lee, managing director of active investment at Samsung Asset Management in Seoul. “Duty-free operators will be affected the most. It’s difficult for investors to gauge the impact of geopolitical risk.”

The effort to suppress tourism comes as relations between Beijing and Seoul worsen over South Korea’s decision to deploy the Terminal High-Altitude Area Defense system with the U.S. The anti-missile system aimed at protecting South Korea from North Korean aggression will be deployed as soon as possible, U.S. Secretary of State John Kerry said Oct. 20. Chinese tourists made up 48 percent of arrivals in September, according to KTO figures.

Hard to Predict

LG Household plunged 8.3 percent at the close in Seoul, its biggest drop since June 2014, and Amorepacific lost 7.1 percent in its sharpest decline since July 2015. Cosmetics manufacturers Cosmax Inc. and Korea Kolmar Co. fell 8.5 percent and 8.3 percent, respectively. Hana Tour Service Inc., a Seoul-based travel agency, plummeted 8 percent, Hotel Shilla Co. decreased 6.9 percent and Grand Korea Leisure Co., a casino operator, dropped 6.8 percent. Coway Co., which exports water purifiers to China, was down 2.6 percent.

The Kospi gauge dropped 0.5 percent, the most in Asia, even as South Korean third-quarter gross domestic product data beat estimates.

The China National Tourist Administration posted a statement on its website on Oct. 13 saying it will regulate cheap travel packages, without citing a specific country. The report in JoongAng Ilbo and information received by the Korea Tourism Organization on this issue is based on allegations from local travel agencies in China and there hasn’t been an official statement from the Chinese government, said the KTO’s Kim.

Ctrip.com International Ltd. has been “acting to curb unrealistically low-cost tour packages,” but that is “not directed at any country,” said Jane Chen, a spokewoman at the Shanghai-based travel agency.

“It’s hard to predict when this issue ends,” said Kee Hosam, head of equities at Dongbu Asset Management in Seoul. “Multiples of cosmetics companies will be corrected, but they won’t fall endlessly.”

--With assistance from Daryl Loo and Rachel Chang To contact the reporter on this story: Heejin Kim in Seoul at hkim579@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Andrew Janes, Chan Tien Hin

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