Anti-Aging Products Lift Japan Cosmetics Shares to Record Highs

Increased tourism and an aging society are two of the biggest waves cresting over Japan, and thanks to both the country's cosmetics companies are seeing stock prices buoyed to all-time highs.

Market attention tends to focus on the rising number of tourists for boosting cosmetics stocks, but local consumers cannot be counted out, especially for upscale products.

And these stocks are likely to remain popular with investors for some time as more women enter Japan's workforce and the country gets older, with anti-aging products, such as creams to counter wrinkles, expected to continue selling well.

Total market capitalization of Japan's four main cosmetics makers -- Shiseido, Kose, Pola Orbis Holdings and Noevir Holdings -- came to 3.27 trillion yen ($29.6 billion), up 340% from five years ago.

Women's social advancement has also boosted demand for luxury brand cosmetics. While the monthly disposable income of single women in workers' households only grew by 3% to 226,795 yen in 2016 from 220,039 yen in 2012, beauty product expenditures jumped more than 10% to 5,332 yen from 4,816 yen over the same period, according to a household income and expenditure survey.

Japanese research company Fuji Keizai estimates that the market for basic skin care products costing 6,000 yen or more has grown by 9% to 430.5 billion yen in 2016 from 393.4 billion yen in 2012. The market is expected to grow more than 2% this year from the previous year's forecast.

The rise of anti-wrinkle products has also lifted cosmetics stocks in recent months. The pharmaceutical affairs law allows companies to tout only the efficacy of diminishing the appearance of wrinkles. But now they can advocate a product's ability to ameliorate those crow's-feet or furrows in the brow.

Pola Orbis Holdings' Wrinkle Shot Medical Serum, which was released in January after obtaining approval from the Ministry of Health, Labor and Welfare last July, became the first wrinkle-improving quasi-drug. The cream's sales came to 6 billion yen in the January to March quarter, 30% higher than an initial target.

Other cosmetics manufacturers are also conducting research and development of wrinkle-improving products. Shiseido plans to release a cream to counter wrinkles later this month.

If these products go mainstream, companies are hoping demand will not wane -- even in the face of price increases -- and earnings will grow.

Cosmetics shares are currently seen as overvalued, with companies having price-earnings ratios of more than 30. Shiseido's has been as high as 60. The next challenge will be whether cosmetics makers can continue offering high-end skin care products that consumers still find worth the expense.

The idea of diminishing wrinkles tickles the minds of women who seek beauty. Expectations have lifted cosmetics shares so far, but they are an ideal target for equity investors who want to follow their dreams.