Can geopolitical risk become a buying opportunity? That question is driving renewed interest in defense stocks.
South Korea's main stock index plunged on Thursday amid escalating military tensions in the Middle East, while major defense companies saw their shares surge in unison. Hanwha Aerospace hit an intraday record high, with analysts maintaining a price target of 1.8 million won.
As of 1:27 p.m., the KOSPI fell 317.90 points, or 5.09%, to 5,926.23. The index opened down 78.98 points at 6,165.15 before extending losses to drop below the 6,000 level for the first time in four trading days. A sell-side sidecar was triggered at 12:05 p.m.—the third such occurrence this year.
Market participants showed divergent moves. Retail investors net purchased 4.58 trillion won in bargain hunting, while foreign investors net sold 4.63 trillion won. Institutional investors also net sold 122.4 billion won.
Defense stocks bucked the trend. Hanwha Aerospace traded at 1,378,000 won as of 1:50 p.m., up 15.31% from the previous session. The stock touched an intraday high of 1,479,000 won, setting a new 52-week record. The gains reflect expectations for increased weapons demand amid the escalating military confrontation between Iran and Israel.
Major Korean defense contractors, including the Hanwha Group, have been posting improved earnings through large-scale export contracts with European countries such as Poland and Romania. Online communities and social media have seen the spread of meme content featuring Hanwha Group Chairman Kim Seung-youn and Vice Chairman Kim Dong-kwan, symbolizing the current investment fervor. However, experts advise making investment decisions based on order backlogs and fundamentals rather than following market sentiment.
Korea Investment & Securities maintained its "buy" rating and 1.8 million won price target for Hanwha Aerospace, citing multiple export catalysts.
The potential expansion of European exports for the Chunmoo multiple rocket launcher system is drawing particular attention. Korea Investment & Securities projected continued growth in export pipelines based on a diversified product portfolio including the K9 self-propelled howitzer, Chunmoo, Redback infantry fighting vehicle, and propellant charges. The firm noted growing demand from France and other European nations to replace aging multiple rocket launcher systems, as well as Eastern European countries' need to replace obsolete Soviet-era platforms and build new defense ecosystems.
According to a report by the French Institute of International Relations (IFRI), South Korea's Chunmoo was evaluated as the most balanced option compared to the U.S. HIMARS and Israel's PULS systems. Fast delivery times and operational flexibility were cited as key advantages. France's current multiple rocket launcher systems are expected to become inoperable after 2027 due to parts supply issues, likely triggering significant replacement demand.
The Chunmoo's open platform architecture, which allows integration of ammunition from other countries, was also identified as a differentiating factor, while HIMARS and PULS remain under U.S. and Israeli control, respectively.
"Considering the supply of ammunition and parts, an export market worth more than 12 trillion won exists," said Jang Nam-hyun, an analyst at Korea Investment & Securities. "We expect Chunmoo to expand its market share based on its comparative advantages of fast delivery and operational flexibility."