South Korean defense stocks experienced significant gains on Tuesday, aligning with a global uptick in defense-related shares amid heightened security concerns fueled by the Russia-Ukraine war. Leading the surge were prominent South Korean companies such as Hanwha Aerospace, Korea Aerospace Industries, Hyundai Rotem, and LIG Nex1. Hanwha Aerospace shares skyrocketed by up to 16.67%, while Hyundai Rotem, known for its railway equipment and defense products, saw an increase of up to 11.51%. Shares in Korea Aerospace and LIG Nex1, which specialize in arms and aerospace equipment, rose by 7.77% and 7.76%, respectively. Other defense stocks also performed well, with Victek climbing 4.88%, Firstec up 4.69%, and Poongsan gaining 7.65%.
The rise in South Korean defense stocks is supported by a surge in demand for military manufacturing, driven by substantial arms orders in 2024. According to a report from the Italian Institute for International Political Studies released last April, South Korea’s arms exports increased from $2 billion to $3 billion in the late 2010s, reaching $7.3 billion in 2021, solidifying its position as a defense industrial powerhouse.
This upward trend comes amid expectations of increased defense spending in Europe following security discussions among regional leaders focused on bolstering military budgets. The discussions emphasized strengthening Ukraine and European defense capabilities after contrasting views between former U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskyy on resolving the Russia-Ukraine conflict emerged during their White House meeting on February 28. British Prime Minister Keir Starmer has committed to raising military spending to 2.5% of GDP by 2027, with other European nations potentially following suit.
Morningstar’s aerospace and defense analyst, Loredana Muharremi, projects European defense spending to reach 3.1% of GDP by 2029 and 3.5% by 2032. She noted that achieving a 3.1% defense spending target by 2029 is feasible with strategic planning, debt financing, and a focus on European production and R&D. The Stoxx Europe aerospace and defense index surged 8% on Monday, marking its best session in five years. In the U.S., defense stocks also climbed after Trump confirmed tariffs on Mexico and Canada would proceed as planned.
— news from CNBC