South Korean defense stocks surged after the U.S. launched military operations against Iran, rattling international markets. A prolonged U.S.-Iran conflict could increase Middle Eastern defense spending and boost demand for Korean-made weapons. The rally pushed Hanwha Group, led by Hanwha Aerospace, to fifth place among Korean conglomerates by market capitalization.
According to the Korea Exchange on June 3, Hanwha Aerospace closed at 1,432,000 won, up 19.83%. The stock hit an intraday high of 1,492,000 won, marking a new 52-week record. Hanwha Systems ended the regular session at 146,700 won, up 29.14%, while LIG Nex1 hit the daily limit with a 29.86% gain. Hyundai Rotem (8.03%), Poongsan (12.78%), and Korea Aerospace Industries (3.19%) also posted sharp gains.
Securities analysts expect the U.S.-Iran conflict to drive increased defense spending across the Middle East. Hana Securities issued a report maintaining an "overweight" rating on the defense sector, citing its growing investment appeal. The firm noted that a prolonged war could heighten security concerns among Middle Eastern nations, leading to higher defense budgets and greater imports of Korean weapons. Even a short-term conflict could benefit domestic defense companies over the medium to long term.
"Even if the war ends early, weapons imports to the Middle East could increase over the medium to long term as countries prepare for potential follow-up attacks by Iran and regional uncertainty," said Chae Woon-saem, analyst at Hana Securities. "Both U.S. and Korean defense companies are expected to benefit from rising Middle Eastern weapons demand."
The surge in defense stocks lifted Hanwha Group, which includes Hanwha Aerospace, to fifth place by market capitalization. HD Hyundai Group had held that position until the previous trading day but was overtaken as Hanwha's defense affiliates soared. At the regular session close, Hanwha Group's combined market cap stood at 177.92 trillion won, compared to HD Hyundai Group's 170.61 trillion won. The top four conglomerates by market cap remain Samsung (1,487.97 trillion won), SK (844.63 trillion won), Hyundai Motor (321.18 trillion won), and LG (185.59 trillion won).