Pocheon, South Korea – May 25: A South Korean K-2 combat tank fires live ammunition during a live-fire training exercise at Sunjin Fire Training Center in Pocheon, South Korea, May 25, 2023. South Korea and the United States are conducting joint live-fire exercises to commemorate the 70th anniversary of their alliance. North Korea last week condemned a joint live-fire training exercise between South Korea and the United States, calling it a “war exercise” against the country. (Photo provided by Jung Sung-joon/Getty Images)
Jung Sung Joon | Getty Images News | Getty Images
South Korean defense stocks soared on Tuesday as an end to the Iran war appeared in sight. This is because the company may subsequently benefit from sales to the Middle East.
Hanwha Aerospace, Seoul’s largest defense stock, rose as much as 11.8%. Hyundai Rotem, maker of the K2 Black Panther main battle tank, rose as much as 12.67%, while LIG Defense & Aerospace soared to nearly 30%, the upper limit of the Kospi index’s rise. Fastech, which makes parts for ground combat vehicles, is also close to reaching its 30% limit.
Mirae Asset Securities wrote in a June 16 note that expectations are growing among investors that the defense export pipeline will soon be restarted and orders from the region will increase.
Kang Tae-ho, an analyst at South Korean securities firm DS Investment and Securities, also said that the end of the Iran war would be a “positive catalyst” for South Korea’s defense industry.
LIG manufactures the Chonggun air defense system, also known as M-SAM, which made its combat debut in the United Arab Emirates during the Iran War.
Analysts say the Chonggun interceptor missile offers similar performance to the U.S.-made PAC-3 interceptor used in the Patriot air defense system and costs one-third of the PAC-3’s reported $4 million.
Kang cited Hanwha Aerospace’s war-suspended negotiations with Saudi Arabia and Hyundai Rotem’s negotiations to export 250 K2 main battle tanks to Iraq as examples of reasons for optimism in this area. “Securing orders will become a reality once negotiations resume after the end of the war,” he said.
“Given that the development of the Middle East-specific variant ‘K2ME’ has already been completed, we believe that the deal is likely to be signed in the second half of this year or the first half of 2027,” he said.
Hyundai Rotem announced K2ME in March, reportedly hinting at targeting the Gulf market for armored vehicles.
Vikas Pershad, Asian equity portfolio manager at M&G Investments, told CNBC that investors may be focused on long-term demand drivers for the sector.
“Defense spending is increasingly driven by long-term strategic considerations, rather than single geopolitical events, and these trends have not changed,” he said.
—CNBC’s Lisa Kim contributed to this report.
