South Korean Defense Stocks Surge as Global Military Spending Increases: A Look at the Growing Weapons Demand

South Korean Defense Stocks Soar Amid Rising Tensions

South Korean defense stocks have experienced significant gains in the past year, with one stock surging over 60% as tensions on the Korean Peninsula escalate. This increase in demand for arms, partly driven by Russia’s invasion of Ukraine, has led to a rise in global military spending, which reached $2.1 trillion as of 2021, according to SIPRI Arms Transfer Database.

Hanhwa Aerospace, a subsidiary of South Korean conglomerate Hanhwa Group, has seen its stock rise by 66% since the beginning of the year and nearly 90% in the last 12 months. The company manufactures air defense systems, armored fighting vehicles, and artillery systems.

South Korea has benefited from the surge in global military expenditure and is now among the top 10 defense export countries in the world, according to Morgan Stanley analysts citing SIPRI.

The escalating tensions in the Korean Peninsula have also increased interest in South Korean weapon platforms, with some of these systems finding their way into markets in the Middle East and Europe.

Growing Demand for South Korean Weapons

Morgan Stanley reports that South Korea has become a major exporter of military and defense equipment, with exports totaling 22.9 trillion South Korean won ($17.9 billion) in 2022, more than double the figure from 2021.

The rising demand from Europe and Asia for Korean manufacturers to provide military/defense equipment has boosted export volumes. Some notable weapons systems from South Korea’s defense industry include the K9 Thunder self-propelled howitzer, the K2 main battle tank, and the FA-50 light attack aircraft.

In July 2022, Poland ordered 672 K9 units for $2.4 billion and 1,000 K2 main battle tanks for $3.34 billion to replace arms donated to Ukraine. Poland also signed additional deals for 48 FA-50 light attack aircraft and 288 multiple launch rocket systems.

These purchases mark a new entrant into the European arms market and highlight South Korea’s growing presence as a defense equipment supplier.

Korea Aerospace Industries, the manufacturer of the FA-50 aircraft, experienced a rise in shares this year but has since seen a year-to-date loss of about 4%. However, analysts expect sales to pick up in the second half of the year, driving the company’s 2023 earnings.

Morgan Stanley is optimistic about the outlook for the South Korean defense industry, citing growth opportunities in chip-making, the electric vehicle value chain, defense, and energy sectors.

South Korea’s strong industrial and tech base has positioned it as a capable defense equipment manufacturer. The country’s defense industry is expanding into areas like drones, unmanned aerial vehicles, and undersea vehicles.

With its growing capabilities, South Korea aims to be a major arms exporter globally, combining its strengths with those of U.S. defense companies.

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