Korean defense stocks rally as Middle East conflict intensifies

On the 7th, flames and smoke are rising due to an Israeli airstrike in Dahieh, Beirut, Lebanon. (AP/Yonhap)

South Korea’s defense stocks are rallying amid escalating tensions in the Middle East triggered by the Israel-Hamas conflict.

Shares of Hanwha Aerospace Co., a leading defense stock in the country, surged 16 percent over four trading sessions starting on September 27, closing at 337,500 won ($251) on Friday.

Shares of Hyundai Rotem Co. also rose by 6.27 percent in just two days, while LIG Nex1 Co. gained 5.93 percent over three days.

Following the spin-off of its subsidiaries Hanwha Vision Co. and Hanwha Precision Machinery Co., Hanwha Aerospace has positioned itself as a comprehensive defense firm, covering land, sea, air, and space sectors.

Hyundai Rotem also has a positive outlook, with NH Investment & Securities projecting a 40 percent increase in the company’s operating profit in 2025.

The company’s stock closed at 57,000 won on Friday, and analysts predict its shares could rise as high as 77,000 won, up 35 percent.

The performance of defense stocks is not limited to individual companies.

The PLUS K Defense exchange-traded fund (ETF), which includes major Korean defense companies, has surged 70 percent over the past year.

This growth outpaced ETFs focusing on artificial intelligence (AI) and semiconductor companies, such as ACE Global Semiconductor TOP4 Plus SOLACTIVE, which gained 66.92 percent, and KODEX U.S. Semiconductor MV, which increased up 63.81 percent over the past year.

Tensions between Israel and Iran have heightened in recent weeks, with speculation that Israel may launch an attack on Iran’s nuclear facilities.

According to a report from Axios on October 2, Israeli officials suggested that a “major retaliation” targeting Iranian oil and strategic facilities could begin within days.

Some analysts, in the meantime, suggest the conflict could remain a short-term event, particularly given the upcoming U.S. presidential election.

With the election just a month away, the Joe Biden administration is unlikely to welcome further instability in the region.

“The heightened geopolitical tension in the Middle East could lead to rising gasoline prices and inflation concerns in the U.S.,” said Park Sang-hyun, an analyst at iM Investment Securities.

“This would be unfavorable for Democratic candidate Kamala Harris, especially as polls show her and Donald Trump in a close race. The Biden administration will likely intensify diplomatic efforts to contain the conflict.”