In this handout image released by the South Korean Defense Ministry via Dong-A Daily, a missile is fired during a joint training between the United States and South Korea on June 6, 2022 in East Coast, South Korea.
South Korean Defense Ministry | Getty Images
South Korean defense stocks have seen significant gains in the past year, with one stock surging over 60% due to increasing tensions on the Korean Peninsula.
Military spending has also been on the rise, driven in part by Russia’s invasion of Ukraine. The global military spending reached $2.1 trillion as of 2021, according to SIPRI Arms Transfer Database.
Hanhwa Aerospace, a subsidiary of South Korean conglomerate Hanhwa Group, has experienced a remarkable 66% increase in its stock value since the beginning of the year and nearly 90% in the last 12 months. The company specializes in manufacturing air defense systems, armored fighting vehicles, and artillery systems.
Morgan Stanley analysts have pointed out that South Korea has benefited from the global increase in military expenditure, becoming one of the top 10 defense exporting countries in the world.
The escalating tensions in the Korean Peninsula have also led to high demand for South Korean weapon platforms, which have found their way into markets such as the Middle East and Europe.
Growing Demand for Weapons
South Korea has become a major exporter of military and defense equipment, with exports reaching 22.9 trillion South Korean won ($17.9 billion) in 2022, more than double the previous year’s figure of 9.5 trillion won, according to Morgan Stanley.
Bank’s investment report highlights the rising demand for Korean manufacturers to provide military/defense equipment such as tanks, artillery, and airplanes to Europe and Asia.
Notable weapons systems from South Korea include the K9 Thunder self-propelled howitzer from Hanhwa, the K2 main battle tank from Hyundai Rotem, and the FA-50 light attack aircraft manufactured by Korea Aerospace Industries.
In a recent deal, Poland ordered 672 K9 units for $2.4 billion and 1,000 K2 main battle tanks for $3.34 billion. Poland’s Minister of National Defense emphasized the need for a strong military to deter aggression.
The procurement of the K2 tank marks a new entrant into the European arms market, according to Nikkei. This move by Poland represents the second major arms procurement by a NATO member from a non-NATO supplier.
Shares of Hyundai Rotem, the manufacturer of K2 tanks, have risen 6% this year and 20% in the last 12 months. Korea Aerospace Industries, the maker of FA-50 aircraft, has also secured contracts from Malaysia and is expected to see growth despite a temporary decline in stock value.
Although South Korean defense stocks have seen some fluctuations, the overall outlook for the defense industry remains positive.
Morgan Stanley predicts growth opportunities in areas such as chip-making, EV value chain, defense, and energy enablers.
This view is supported by experts who believe that South Korea’s strong industrial and tech base positions it as a major arms exporter. The country’s defense industry is expanding into new areas like drones and unmanned vehicles.
The focus is on providing high-quality conventional military equipment and vehicles, as well as collaborating with US defense companies.
Despite temporary setbacks, the long-term growth scenario for South Korean defense companies remains valid. There is a steady growth in sales for T-50 related products.
Tech and Industrial Base
The South Korean defense industry has a strong foundation in technology and industry. The country’s capabilities extend beyond high-end military equipment to include excellent conventional military equipment and vehicles.
South Korea is also looking to expand its defense industry into new areas such as drones, unmanned aerial vehicles, and undersea vehicles. Collaboration with US defense companies is a possibility.
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