South Korean defense stocks surge on prospects for Iran war’s end
POCHEON, SOUTH KOREA – MAY 25: South Korea’s K-2 battle tanks fire live rounds during a live fire exercise at the Seungjin fire training center in Pocheon, South Korea, May 25, 2023. South Korea and the United States are holding joint live-fire exercises to mark the 70th anniversary of the alliance. Last week, North Korea condemned joint live-fire drills by South Korea and the United States, calling the drills a “war drill” against the country. (Photo: Chung Sung-Jun/Getty Images)
Chung Sung-jun | Getty Images News | Getty Images
South Korean defense stocks rose sharply on Tuesday as it emerged the end of the Iran war was near, as companies could benefit from subsequent sales to the Middle East.
Hanwha Aerospace, Seoul’s top defense stock, rose as much as 11.8%. Hyundai Rotem, the manufacturer of the K2 Black Panther main battle tank, gained up to 12.67%, while LIG Defense & Aerospace reached the limit gain of almost 30% on the Kospi index. Firstec, which produces components for ground combat vehicles, also reached the almost 30% increase limit.
Investors increasingly expect defense export pipelines to resume soon and orders from the region to increase, Mirae Asset Securities wrote in a June 16 note.
Kang Tae Ho, an analyst at South Korean brokerage DS Investment and Securities, also said that the end of the Iran war will serve as a “positive catalyst” for the Korean defense industry.
LIG produces the Cheongung air defense system, also known as M-SAM, which was first seen in the United Arab Emirates during the Iran war.
Analysts said the Cheongung interceptor missile offers similar performance to the U.S.-made PAC-3 interceptor missile used in the Patriot air defense system and costs one-third of the PAC-3’s reported $4 million price tag.
Kang cited Hanwha Aerospace’s negotiations with Saudi Arabia, which were suspended due to the war, as examples of reasons to be optimistic about the sector, and Hyundai Rotem’s negotiations to export 250 K2 main battle tanks to Iraq. “Securing the orders will become a reality with the resumption of negotiations after the end of the war,” he said.
“Considering that the development of the Middle East-specific derivative model ‘K2ME’ has already been completed, we believe that a contract is likely to be signed in the second half of this year or the first half of 2027,” he said.
I had a Hyundai Rotem reportedly announced In March, K2ME signaled that it would target the Gulf market for armored vehicles.
Vikas Pershad, portfolio manager of Asian equities at M&G Investments, told CNBC that investors may be focusing on the sector’s long-term demand factors.
“Defense spending is increasingly being driven by longer-term strategic considerations rather than any geopolitical event, and these trends remain unchanged,” he said.
— CNBC’s Lisa Kim contributed to this report.
