Unstoppably Racing Defense Stocks

Hanwha Aero Shares Rise 60% This Year
Geopolitical Risks Highlight Merits of Korean Defense Firms
"Domestic Defense Companies Offer Excellent Value... Benefits to Continue"

[Image source=Yonhap News]

Defense stocks continue to rise, with some hitting all-time highs. This is due to increased demand for conventional weapons amid geopolitical risks, benefiting domestic defense companies that produce weapons with superior performance relative to their price.

According to the financial investment industry on the 11th, Hanwha Aerospace's stock price has risen 60.64% from the end of last year to 200,000 KRW. During the same period, LIG Nex1 increased by 40.46% to 183,000 KRW, Poongsan rose 23.47% to 48,400 KRW, and Hyundai Rotem climbed 19.17% to 31,700 KRW. These gains far exceed the KOSPI's 0.94% increase. As domestic defense companies' stock prices rise, the returns on exchange-traded funds (ETFs) are also improving. The only domestic defense ETF, Hanwha Asset Management's ‘ARIRANG K Defense Fn,’ has posted a 19.51% increase this year.

The rise in defense companies' stock prices is attributed to the sustained global geopolitical risks, which have increased demand for weapons. Starting with the Russia-Ukraine war in 2022, conflicts such as the war between Israel and the Palestinian armed group Hamas have erupted. As a result, countries worldwide feeling security threats are boosting their military spending. According to the Stockholm International Peace Research Institute (SIPRI), a Swedish think tank, global defense spending in 2022 reached $2.24 trillion (approximately 2,915.36 trillion KRW), marking the highest level since the Cold War. In particular, Korean weapons are benefiting due to their relative advantages in production capacity, delivery times, and unit costs. A financial investment industry official explained, "Unlike the global slowdown in conventional weapon production after the Cold War, Korea has continuously produced weapons," adding, "Korean defense companies also have the capability to provide maintenance and repair services and local production."

Another positive factor is the amendment to the Korea Export-Import Bank Act (SUEUN Act), which increased the legal capital limit from 15 trillion KRW to 25 trillion KRW and passed the National Assembly plenary session on the 29th of last month. Previously, SUEUN limited credit extensions to specific individuals or corporations to 40% of its own capital. This restriction led to the exhaustion of the limit during the first contract with Poland in 2022, making additional financial support impossible. However, with the increased limit, it is expected to positively impact the second contract as well.

Kim Dae-jun, a researcher at Korea Investment & Securities, stated, "Military build-up to strengthen security capabilities is underway worldwide, especially in Europe and the Middle East, which are adjacent to war-torn countries," and added, "With the passage of the SUEUN Act amendment in the National Assembly plenary session, domestic defense companies have secured the basic conditions to negotiate the second contract." He further noted, "The benefits for domestic defense companies, recognized for their superior weapon system manufacturing capabilities relative to price and strict adherence to delivery schedules, are expected to continue."

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