[Edaily Reporter Park Soon-yeop] Amid ongoing geopolitical tensions surrounding the U.S. and Iran, and with Europe’s joint 6th-generation fighter jet development program effectively suspended, domestic defense industry stocks are showing strength. Geopolitical risks and export expectations appear to be simultaneously reflected in defense stocks, which had recently lagged behind the KOSPI.
According to MP Doctor on the 10th, #LIGDefenseAndAerospace was trading at 776,000 won as of 9:13 a.m. today, up 51,000 won (7.03%) from the previous trading day. Meanwhile, #Korea Aerospace Industries (5.09%), #Hanwha Aerospace (3.54%), and #Hyundai Rotem (2.65%) are also showing gains.

This is interpreted as an improvement in investor sentiment toward defense stocks overall, as military tensions between the U.S. and Iran have recently escalated again. Geopolitical risks stemming from the Middle East are once again coming to the fore, with ongoing concerns over logistics and energy supply disruptions surrounding the Strait of Hormuz, compounded by reports of potential additional U.S. attacks on Iran. Typically, when military tensions rise, defense stocks tend to perform strongly, reflecting expectations of increased defense spending by various countries and growing demand for weapons systems.
Additionally, news that the Future Combat Air System (FCAS)—a joint next-generation fighter jet development program led by France and Germany—has been suspended further bolstered the strength of domestic defense stocks. FCAS is a 6th-generation fighter jet development project that France, Germany, and Spain had been pursuing with the goal of operational deployment by 2040. However, the joint development has faced difficulties due to ongoing conflicts over leadership and equity stakes.
According to Daishin Securities, an agreement was reached at the EU-Western Balkans Summit in June of this year not to pursue the joint development of a next-generation manned fighter jet. However, they decided to maintain cooperation on the development of combat systems that link manned and unmanned aircraft with satellites. Choi Jeong-hwan, an analyst at Daishin Securities, said, “This FCAS case serves as a reminder that the integration of the European defense industry is realistically difficult,” adding, “We anticipate benefits across the entire domestic defense industry, including the KF-21.”
There are also analyses suggesting that the strategic value of the KF-21 could increase. Given the low likelihood of joint development with the U.S. F-47 and the cost and schedule pressures facing the UK, Japan, and Italy’s GCAP program, there is an assessment that demand for direct procurement or joint development of the KF-21—which allows for evolutionary development—could increase. The KF-21 is currently undergoing initial mass production in Korea this year, and development is expected to continue in a direction suitable for operating manned-unmanned integrated systems in the future.
The fact that defense stocks have recently underperformed the KOSPI is also cited as a factor boosting their potential for a rebound. Hana Securities noted that over the past two months, the stock returns of the five major Korean defense companies lagged the KOSPI by 32.2 percentage points, diagnosing that the downside risk relative to expected returns has decreased from a medium- to long-term perspective, thereby improving the risk-reward ratio for new investments.
Earnings momentum is also expected to strengthen as the year progresses. Hana Securities projected that the combined operating profit growth rate of the five major South Korean defense companies would expand from 18.8% in the first half to 60.9% in the second half. On a company-by-company basis, it forecast relatively high operating profit growth rates for the second half: 486.2% for Hanwha Systems, 137.0% for Korea Aerospace Industries, and 62.7% for Hanwha Aerospace.