China and its consumers just rallied to boycott Lotte Group, the fifth-largest conglomerate in South Korea, and one of the country’s major foreign retail operators in China.
Lotte feeling the burn
As of March 9, Lotte Group was forced to temporarily shut down 55 of its 99 stores in China by Chinese authorities.
According to thestreet.com, Lotte Shopping Co Ltd (KS: 023530) had seen its shares fall 17.9 percent from mid-February to 6th March. When this article was written, its share price has yet to recover from its fall.
What was all the rage about? If you hadn’t known, the saga revolved around the deployment of the Terminal High Altitude Area Defense (THAAD) system in South Korea.
Long story short, this is what happened…
Even though the THAAD is supposedly a defensive weapon designed to shoot down short, medium and intermediate ballistic missiles (most probably launched by North Korea), China went ballistic at this US military presence in its annoying neighbour also known as South Korea. (South Korea probably sees China as an annoying neighbour too).
Anti-Korea sentiments quickly trickled down to ordinary consumers, and in early March, messages like this were spread around in WeChat friends’ circles:
If Chinese is not your forte, here’s the message in short: For the honour of thy country, do not buy from Lotte even if they offer stuff for free!
And this video (published on 2 Mar) gave us a glimpse of how vacant a Lotte supermarket in China looked:
It seems like shoppers deserted Lotte stores out of patriotism, heeding the state media’s call for a boycott of South Korean goods and services.
Could this be a buying opportunity?
Similar incidents have happened before, and this saga shows us again how irrational consumers can be. But Lotte’s fallen stock price is not necessarily bad news for investors.
For instance, thestreet.com suggests that while the boycott from consumers might temporarily depress the shares of Korean companies involved, it might also present a buying opportunity.
After all, Warren Buffett had also advised investors to “be fearful when others are greedy and greedy when others are fearful”, right? If there is nothing fundamentally wrong with the companies, their shares should rise back up after angry consumers have calmed down.
Also, judging from history, such problems are unlikely to last long. For instance, when China-Japan disputes regarding the Diaoyu/Senkaku Islands surfaced in 2012, angry Chinese protesters took to the streets and some extreme ones even smashed Japanese cars on the road. At that time, Chinese consumers had also vowed to boycott Japanese goods.
But in 2015, Japan issued a record number of visas to Chinese nationals, which was an 85 percent increase from the previous year, due to an influx of Chinese tourist arrivals on a weaker yen and relaxed visa rules.
Also in 2015, Chinese nationals flocking to Japan to buy toilet seats made headlines.
At the end of the day, like what value investor Kee Koon Boon had pointed out previously, it is perhaps not a good idea to bet on rough ideas and trends instead of doing detailed research on individual stocks.
For instance, what happened to Lotte serves as a good lesson reminding us that we have no idea how long “Korea concept stocks” can remain hot, or when Chinese consumers are going to make a radical move.
Why leave ourselves at the mercy of angry, irrational consumers?