[Edaily Reporter Park Sun-Yeop ] Analysts have concluded that global defense demand has entered a phase of structural growth rather than being driven by one-off war-related spikes. Amid the shifting U.S.-centered security order, countries in Europe, the Middle East, and the Asia-Pacific region are strengthening their independent defense capabilities, and demand to replenish weapon stockpiles depleted by the war in Ukraine and conflicts in the Middle East is gaining momentum.
Baek Ju-ho, an analyst at HYUNDAI MOTOR SECURITIES, issued an “Overweight” recommendation on the defense sector on the 23rd, stating, “Global defense demand has entered a phase of structural growth driven by the simultaneous interplay of cracks in the security order, the institutionalization of defense budget increases, and restocking demand resulting from combat-related depletion—rather than being a short-term event dictated by the outbreak and end of a specific war.”

According to Analyst Baek, global defense spending reached a record high of $2.9 trillion last year. As the U.S. strategic focus shifts from Europe and the Middle East to the Indo-Pacific, allies can no longer formulate security strategies based solely on the assumption of automatic U.S. intervention. Consequently, pressure to increase defense spending is mounting, particularly in Europe.
In particular, the assessment is that the North Atlantic Treaty Organization’s (NATO) defense spending benchmark—set to rise from 2% of gross domestic product (GDP) to 5% by 2035—could lead to an increase in orders over the medium to long term. Researcher Baek explained, “Although the target year is 2035, since the lead time for contracting, producing, and delivering weapons systems spans several years, orders must be placed now to ensure they are operational by then.”
In Europe, existing stockpiles were rapidly depleted during the process of providing support to Ukraine. It will also be difficult to quickly restore ground weapons inventories and production lines, which had been scaled back following the end of the Cold War. HYUNDAI MOTOR SECURITIES analyzed that between 1992 and 2021, the European Union’s (EU) main battle tank inventory decreased by 80%, 152- and 155-mm self-propelled howitzers by 64%, and multiple-launch rocket systems by 48%.
Ultimately, the key issue is supply rather than demand. While the United States possesses high-performance weapons systems, constraints include the Foreign Military Sales (FMS) framework, the International Traffic in Arms Regulations (ITAR), high prices, and long delivery times. Europe, too, possesses the technological capabilities, but expanding production capacity in the short term is difficult due to production lines scaled back after the Cold War and a shortage of skilled workers.
It is assessed that South Korea’s defense industry could stand out by filling this gap. Researcher Baek stated, “The competitiveness of South Korea’s defense industry lies in the combination of delivery times, price, localization rates, on-site adaptation, and follow-on logistical support,” adding, “As the standard for defense procurement shifts from ‘top performance’ to ‘performance available when needed,’ South Korea’s mass production lines themselves are being evaluated as strategic assets.”
Not only Europe but also the Middle East was cited as a major market. In the Middle East, demand for the reorganization of air defense networks is growing in response to drone and missile threats originating from Iran. Air defense demand encompasses not only interceptor missiles but also radars, launchers, engagement control, test and evaluation, and command and control systems. Analysts suggest that Korean air defense systems, such as Cheon-gung II and L-SAM, could emerge as viable alternatives for the Middle East’s multi-layered air defense networks.
However, some observers have pointed out that relying solely on the export of finished products has its limitations in the medium to long term. As Europe’s “Buy European,” the U.S.’s “Buy American,” and the Middle East’s policy of fostering domestic defense industries gain momentum, the ability to establish local production, joint ventures (JVs), and maintenance, repair, and overhaul (MRO) systems becomes increasingly important.
HYUNDAI MOTOR SECURITIES assessed that the export strategy of the Korean defense industry is evolving from direct exports of finished products to a structure that combines local joint ventures, joint development, and recurring supplies of ammunition and missiles. HANWHA AEROSPACE’s production hub in Romania and its guided missile joint venture in Poland, as well as HYUNDAI ROTEM’s K2PL production line in Poland, were cited as representative examples.
HANWHA AEROSPACE(012450)was identified as the top pick. Analyst Baek estimated HANWHA AEROSPACE’s potential order pipeline at approximately 37 trillion won, explaining, “The company has the broadest exposure to weapon systems where global demand is concentrated, including the K9 self-propelled howitzer, Cheonmu, and the L-SAM value chain.” He continued, “We also expect the company to enter new markets, such as Western Europe, through joint ventures (JVs) with global defense companies,” adding, “It holds the strongest position at the intersection of order visibility and localization scalability.”