Korean defense stocks jump on Israel-Iran conflict
Shares of South Korean arms makers rose sharply after Israel's attack on Iran, buoyed by the outlook that their exports could increase, even propelling the benchmark stock index Kospi to reach its over three-year high.
Hanwha Systems, a major defense affiliate of Hanwha Group, closed daytime trading at 64,200 won ($47), up 18 percent from the previous session. Earlier in the day, the stock surged as high as 65,000 won, hitting the highest level since its listing on the Kospi in November 2019.
Other major defense stocks also showed strong performances, with LIG Nex1 rising 5.32 percent, Hyundai Rotem gaining 6.32 percent and Hanwha Aerospace climbing 2.65 percent. Shares of each of the companies posted a fresh high.
Amid escalating geopolitical tensions in the Middle East, expectations are rising for increased exports by Korean defense companies, partly due to their rivalry with Israeli firms in the arms sector. Israel may impose restrictions on defense exports to maintain its military capabilities, potentially allowing Korean firms to emerge as alternative suppliers.
"In the past, Israel suspended a shipment of Merkava tanks to Morocco during a conflict with Hamas militants. With Israel likely to prioritize securing its domestic stock of air defense systems and strategic assets, a similar scenario could unfold. This could present short-term export opportunities for Korean defense companies," said Jung Dong-ik, an analyst at KB Securities.
The buoyant defense shares even lifted the Kospi, outweighing concerns that Middle East tensions could pressure the Korean stock market with geopolitical risks.
After opening at 2,903.50, the Kospi dropped as low as 2,886.13 in the early hours, but soon turned to a gain and recovered by closing at 2,946.66, up 52.04 points, or 1.8 percent from the previous session. It was the first time the Kospi surpassed the 2,940-point threshold as of daytime closing since January 2022.
Retail investors and institutions were the net buyers, scooping up shares worth 45.5 billion won and 252.4 billion won, respectively, while foreign investors dumped 322.4 billion won on the market.
The government held a joint emergency meeting, agreeing to maintain a 24-hour monitoring system on the financial markets.
"If market volatility becomes excessive and diverges from the fundamentals of the Korean economy, the government will take swift and bold action under its contingency plans,' a statement released by the Finance Ministry said.
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