South Korea’s China-sensitive stocks are recently showing signs of rebounding, as diplomatic tensions intensified by the installment of an advanced US anti-missile system here appears to be gradually settling.

Riding on the resumption of Chinese group tours and an improved bilateral relationship signaled by the extension of a currency swap are the automobile, cosmetics, duty-free shop and travel sectors.

South Korean shares are expected to test the landmark 2,500 level this week, with the main bourse Kospi closing at 2,496.63 points Friday.

The most popular sectors among foreign investors were cosmetics, automobiles and hotels and leisure, according to Shinhan Financial Investment’s last weekly report.

These were the sectors most heavily affected by the Chinese government’s purported boycott of South Korean companies in the wake of a diplomatic dispute related to the Terminal High Altitude Area Defense system on the Korean Peninsula.

In the case of retail giant Lotte, its sales in China dropped nearly 65 percent during the first eight months of the year, expecting its annual figure to fall by 1.2 trillion won ($1.07 billion) by year’s end. Also, the number of Chinese visitors in South Korea in the third quarter fell 65 percent from the same period last year.

While the sustainable uptrend in the technology and steel sectors contributed to the latest rally, market observers mostly pointed to the improvement in the Korea-China relations.

One such signal is the agreement to renew a bilateral currency swap deal on Oct. 12. The agreement worth 64 trillion won had for some time been stalled amid concerns over the THAAD brawl.

“The worst is now over (when it comes to THAAD-related stocks),” said Lee Jong-woo, chief researcher at IBK Investment Securities.

“With the unfavorable condition out of the picture, these stocks are finally getting a proper market evaluation.”

LG Household & Health Care stood out in the cosmetics cluster, recording a record-high quarterly profit of 253 billion won in the July-September period, up 3.5 percentage from the same period last year.

Some experts nevertheless called for prudence until more tangible signs are detected in the consumer sector as the improvement of the investment sentiment has not yet been converted into real market recovery.

“It is more advisable to wait until the fourth-quarter sales performance and focus on companies that are likely to stay on a long-term uptrend from next year,” said Lee Kyung-min, a researcher at Daishin Securities.

By Bae Hyun-jung (tellme@heraldcorp.com)