Asian Defence Stocks Soar as Europe, US Look to Re-Arm

Stocks of South Korean and Japanese defence suppliers have shot up this year amid expectation that European nations will buy more military equipment from North Asia.

Shares in Hanwha Aerospace, South Korea’s top artillery company, have soared by close to 130% over the past six months, while Japan’s largest defence contractor Mitsubishi Heavy Industries (MHI) has risen by 45.5% over the same period.

Both added further rises this week after German lawmakers backed a 500-billion-euro programme on infrastructure and defence spending.

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The war in Ukraine has helped drive a 500% rise in the value of Hanwha Aerospace and MHI stocks over the past three years, while shares of other entities such as South Korean tank maker Hyundai Rotem are up over 100% this year on expectation of contracts from Poland and Romania, according to a report by the Financial Times.

With Trump calling on members of NATO to jack up defence spending to 5% of GDP and concern that Russian aggression may not end after a peace settlement with Ukraine, these sorts of outcomes are not surprising.

Japan has also said it will raise its defence spending to 2% of GDP over the next two years, while Trump has questioned the fairness of its security treaty with the US. Tokyo has also allowed suppliers to lift their profit margins. Multiple firms look likely to benefit.

Hanwha announced on Tuesday that it has acquired a 9.9% stake in Australian shipbuilder Austal, which provides support to the US Navy and has a service centre in San Diego.

Allies’ help needed

That news comes amid “growing recognition in Washington of the need to harness its Asian allies’ shipbuilding expertise to keep pace with China’s naval build-up,” the FT said in a separate report on Thursday.

Trump is keen to revive US shipbuilding, which slumped to a worrying degree while China has expanded its naval and commercial fleets dramatically in the 12 years since Xi took power.

Trump has also suggested he may be prepared to outsource production and repair work on navy vessels given the vast advances Beijing has made and scepticism that the US can narrow the staggering output gap that has developed over the past decade. China is estimated to have about 370 vessels and submarines compared to the US’s 297.

“US shipyards had just five ships under construction in 2023, according to the Congressional Research Service, compared with 1,749 in China,” the FT report said, noting that US shipbuilding and maintenance programmes are so sluggish that several senators proposed loosening industry restrictions on foreign involvement.

That appears to have already happened, given Hanwha acquired a shipyard in Philadelphia late last year, amid hopes of securing maintenance and repair work on a handful of US Navy vessels this year.