Is the beauty sector still attractive?

While beauty, cosmetics and skincare firms bet big on China, a tougher market threatens their premium valuations

Frame with gift, sequins, beauty and makeup cosmetics kit
(Image credit: Getty Images)

Beauty has been a popular sector among investors who like high-quality companies. These brands were seen as relatively defensive: even in a recession, customers were likely to keep buying their favourite products as an affordable luxury. And there was good potential for growth since customers in emerging markets would buy more cosmetics and high-end skincare from desirable foreign brands as they became wealthier. So a slump last week in the shares of Japan’s Shiseido and South Korea’s Amorepacific is worth noting. 

Shiseido is off almost 24% after disappointing results that showed continued weak demand in China. As a one-off, this might not be a complete shock: the company had also reported weak full-year results for 2023 driven by China and had already announced plans to cut costs and improve profitability. Its shares peaked in 2019 and have been looking weak since mid-2023. However, Amorepacific fell a similar amount after earnings missed expectations, with continued weak demand in China. Looking back further, US group Estée Lauder had a dire 2023 on the back of problems… yes, China. So all this is starting to look like a bit of a worrying pattern.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.