Defense stocks on the rise
Analysts are turning bullish on defense stocks in South Korea and the United States as demand for their products is speculated to rise.
Defense stocks have been soaring under the Trump administration on expectations of rising defense expenditure. As tensions with North Korea have escalated, defense stocks have gained even more traction.
Growing demand for defense equipment from emerging market economies could make South Korea into Asia’s leading manufacturer of weapons by 2020, toppling China current leading position. The defense industry in South Korea has boomed over the years as the country has been at a constant state of war with its neighbor North Korea. CLSA analyst Paul Choi recently mentioned in a report that, “Defense will be one of the fastest-growing areas of the economy [South Korea].”
Korean and US defense companies are well positioned to gain from escalating tensions in the Korean peninsula. Further, rising demand from emerging market economies like Vietnam, India, and Indonesia will also fuel these stocks.
Investors are betting particularly heavy on South Korea’s (EWY) largest defense stocks – Hanwha Techwin (01250.KS), Korea Aerospace Industries (047810.KS) and LIG Nex1 (079550.KS). These stocks have returned 17.2%, -6% and -1.2% respectively YTD.
Further, US names such as Boeing (BA), Lockheed Martin (LMT), General Dynamic (GD), Raytheon (RTN) and Northrop Grumman (NOC) also look attractive. Shares of the companies have outperformed the broad-based S&P500 index (SPY). YTD these stocks have climbed 17.6%, 8.2%, 12.7%, 11.2% and 5.7% respectively.