Hanwha Asset Management "K-Defense Soars with Export-Import Bank Act Amendment... Recommends 'ARIRANG K-Defense' ETF"

Hanwha Asset Management announced on the 7th that it recommends the exchange-traded fund (ETF) ‘ARIRANG KbangsanFn’ as a beneficiary following the amendment of the law related to the capital increase of the Korea Eximbank.

According to financial information provider FnGuide, as of the 6th of this month, ‘ARIRANG KbangsanFn’ has risen by 56.64% over approximately 1 year and 2 months since its listing on January 5 last year. This performance is more than twice the increase of the KOSPI 200 during the same period (19.60%). The ETF’s recent returns over 3 months, 6 months, and 1 year are 18.98%, 23.39%, and 38.27%, respectively, significantly outperforming the KOSPI 200’s returns of 6.84%, 5.45%, and 11.00% over the same periods.

This performance is interpreted as reflecting expectations that the capital increase of the Korea Eximbank will expand its financial support capacity for export companies. On the 29th of last month, the amendment to the Korea Eximbank Act, which raised the statutory capital limit of the Korea Eximbank from 15 trillion won to 25 trillion won, passed the National Assembly plenary session.

Under current law, the Korea Eximbank’s credit extension limit to specific individuals and corporations is restricted to 40% of its own capital. In the first defense export contract with Poland in 2022, the Eximbank already loaned about 6 trillion won, equivalent to 40% of its own capital, to Poland, filling most of the financial support limit for a specific country, making the capital increase necessary. Large-scale export projects like those in the defense industry are typically national contracts, and it is customary for the exporting country to provide financial support to the importing country as well.

Hyundai Rotem is expected to benefit the most from this legal amendment, with the second contract volume to Poland amounting to about 20 trillion won. Hanwha Aerospace is also evaluated to have significantly reduced uncertainties regarding the remaining second contract volume, which is about 10 trillion won. As of the end of last month, the stock prices of Hanwha Aerospace and Hyundai Rotem rose by 51% and 26%, respectively, compared to the end of the previous year. These two companies account for about 38% of the ‘ARIRANG KbangsanFn’ ETF.

The ‘ARIRANG KbangsanFn’ ETF is the only domestic defense-themed ETF investing in leading domestic defense industry companies. Its major components include ▲Hanwha Aerospace ▲Korea Aerospace Industries (KAI) ▲Hyundai Rotem ▲Hanwha Ocean ▲LIG Nex1 ▲Hanwha ▲Hanwha Systems ▲Hyundai Wia ▲Poongsan ▲SNT Motiv, among others. The ETF’s net asset value is approximately 70.5 billion won.

The defense industry is a business that can generate long-term stable profits by producing sales in maintenance, repair, and operations (MRO) even after weapon sales. Since supply is limited even if demand increases, long-term prosperity can be expected. Considering the proven technological capabilities and sustainability in steady weapon development and localization as a militarily threatened armistice country, the completeness of weapons that withstand various climates on the Korean Peninsula, and practical operation in training, the ‘ARIRANG KbangsanFn’ ETF is also suitable for long-term investment using retirement pension DC and IRP accounts.

Domestic defense companies can accelerate the completion of weapon contracts with Poland due to this amendment to the Korea Eximbank Act, and Hanwha Asset Management explains that this is an attractive product from a pension investment perspective, viewing it as the starting point for mid- to long-term growth. While the domestic defense industry was previously focused on the domestic market influenced by North Korea policies, recently, with countries increasing military spending due to conflicts such as the Russia-Ukraine and Israel-Palestine wars, it has established itself as a new growth engine for exports.

Kim Gyu-yeon, manager of the ETF management team at Hanwha Asset Management, said, "Korean-made weapons have price competitiveness compared to competitors such as the United States and Germany, which share the same NATO standards, and domestic defense companies are actively engaged in local license production and technology sharing." He added, "In terms of production capacity expansion, they have an advantage and will increase short-term production capacity through flexible production line adjustments compared to overseas competitors."

This content was produced with the assistance of AI translation services.