Defense-sector stocks, which had taken the lead in the Korean equity market during the first half of the year, continue to struggle. Analysts attribute the weakness to valuation burdens after steep short-term gains and the lack of new contract catalysts. In addition, expectations that the nearly four-year Russia–Ukraine war may be approaching an end are also weighing on investor sentiment. Still, analysts expect earnings growth at defense companies to continue, citing solid weapons procurement demand from Europe, the Middle East, and other overseas markets.
According to the Korea Exchange on November 28, Hanwha Aerospace(012450) closed at 863,000 won, down 0.92% from the previous day. The stock has fallen 14.81% over the past month. Compared with the intraday all-time high of 1,127,000 won on September 30, it is down 23.43%. The company also lost its status as a “premium stock” (priced above 1 million won) as of November 4.
Other defense stocks have seen similar declines. Hyundai Rotem(064350) fell 23.58% over the past month, while LIG Nex1(079550) and Hanwha Systems(272210) dropped 19.69% and 15.73%, respectively. During the same period, foreign and institutional investors dumped large volumes of these shares: they sold 285.2 billion won and 44.8 billion won of Hanwha Aerospace, and 11.5 billion won and 310.4 billion won of Hyundai Rotem. They also sold 19.1 billion won and 14.5 billion won of LIG Nex1, and 28.5 billion won and 45.6 billion won of Hanwha Systems.
The slump has triggered frustration among retail investors posting comments on online stock forums. One investor claiming to hold LIG Nex1 wrote: “They announced an export contract but the share price still isn’t rising.” Others lamented, “AI is the real trend now—defense stocks are yesterday’s story (Hanwha Aerospace),” and “I bought at the 60,000-won level and now it’s down to the 40,000-won range, leaving me with a –24% return (Hanwha Systems).”
Defense stocks were considered market leaders until the first half of the year, buoyed by robust earnings backed by strong order backlogs. The combined accumulated sales and operating profit of the five major defense firms—Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries, Hanwha Systems, and LIG Nex1—reached 29.893 trillion won and 3.607 trillion won, respectively, in the first three quarters, up 88.38% and 114.19% from a year earlier. The gains were driven by revenue recognition from large-scale export contracts won since 2022.
As a result, their combined market capitalization surged to 114.369 trillion won at the end of the third quarter, up 227.89% from the end of last year (34.7786 trillion won). The concern now is that their valuations have become stretched after the rapid run-up in share prices, with expectations rising that earnings growth may inevitably slow going forward—prompting a correction.
Lee Han-gyeol, analyst at Kiwoom Securities, said: “Although the share of high-margin export projects will continue to grow next year, the pace of earnings improvement is bound to slow given this year’s strong performance. After the release of third-quarter results, a temporary lack of new contract momentum has led to a correction in share prices.”
The possibility of an end to the Russia–Ukraine war is also dampening sentiment. The conflict, now approaching four years, has driven many global governments—particularly in Europe—to boost defense spending. A ceasefire would likely curb weapons procurement demand. The United States and Ukraine reportedly reached a new peace proposal during negotiations held on November 23 in Geneva, Switzerland.
Still, analysts maintain that defense companies are likely to extend their earnings growth next year on the back of solid order backlogs, with the global increase in defense spending expected to continue in the wake of the war. Lee said: “Considering the order pipelines expected for the five major defense firms from next year onward, their order backlogs should continue to grow.”
Lee Jae-gwang, analyst at NH Investment & Securities, added: “With rising defense spending driven by geopolitical tensions and armed conflicts, countries are moving forward with weapons modernization projects. The global weapons trade is likely to continue expanding. Factoring in remaining Polish contracts and expected large-scale orders from the Middle East, order backlogs should maintain their upward trajectory.”
Defense-sector stocks, which had taken the lead in the Korean equity market during the first half of the year, continue to struggle. Analysts attribute the weakness to valuation burdens after steep short-term gains and the lack of new contract catalysts. In addition, expectations that the nearly four-year Russia–Ukraine war may be approaching an end are also weighing on investor sentiment. Still, analysts expect earnings growth at defense companies to continue, citing solid weapons procurement demand from Europe, the Middle East, and other overseas markets.
According to the Korea Exchange on November 28, Hanwha Aerospace(012450) closed at 863,000 won, down 0.92% from the previous day. The stock has fallen 14.81% over the past month. Compared with the intraday all-time high of 1,127,000 won on September 30, it is down 23.43%. The company also lost its status as a “premium stock” (priced above 1 million won) as of November 4.
Other defense stocks have seen similar declines. Hyundai Rotem(064350) fell 23.58% over the past month, while LIG Nex1(079550) and Hanwha Systems(272210) dropped 19.69% and 15.73%, respectively. During the same period, foreign and institutional investors dumped large volumes of these shares: they sold 285.2 billion won and 44.8 billion won of Hanwha Aerospace, and 11.5 billion won and 310.4 billion won of Hyundai Rotem. They also sold 19.1 billion won and 14.5 billion won of LIG Nex1, and 28.5 billion won and 45.6 billion won of Hanwha Systems.
The slump has triggered frustration among retail investors posting comments on online stock forums. One investor claiming to hold LIG Nex1 wrote: “They announced an export contract but the share price still isn’t rising.” Others lamented, “AI is the real trend now—defense stocks are yesterday’s story (Hanwha Aerospace),” and “I bought at the 60,000-won level and now it’s down to the 40,000-won range, leaving me with a –24% return (Hanwha Systems).”
Defense stocks were considered market leaders until the first half of the year, buoyed by robust earnings backed by strong order backlogs. The combined accumulated sales and operating profit of the five major defense firms—Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries, Hanwha Systems, and LIG Nex1—reached 29.893 trillion won and 3.607 trillion won, respectively, in the first three quarters, up 88.38% and 114.19% from a year earlier. The gains were driven by revenue recognition from large-scale export contracts won since 2022.
As a result, their combined market capitalization surged to 114.369 trillion won at the end of the third quarter, up 227.89% from the end of last year (34.7786 trillion won). The concern now is that their valuations have become stretched after the rapid run-up in share prices, with expectations rising that earnings growth may inevitably slow going forward—prompting a correction.
Lee Han-gyeol, analyst at Kiwoom Securities, said: “Although the share of high-margin export projects will continue to grow next year, the pace of earnings improvement is bound to slow given this year’s strong performance. After the release of third-quarter results, a temporary lack of new contract momentum has led to a correction in share prices.”
The possibility of an end to the Russia–Ukraine war is also dampening sentiment. The conflict, now approaching four years, has driven many global governments—particularly in Europe—to boost defense spending. A ceasefire would likely curb weapons procurement demand. The United States and Ukraine reportedly reached a new peace proposal during negotiations held on November 23 in Geneva, Switzerland.
Still, analysts maintain that defense companies are likely to extend their earnings growth next year on the back of solid order backlogs, with the global increase in defense spending expected to continue in the wake of the war. Lee said: “Considering the order pipelines expected for the five major defense firms from next year onward, their order backlogs should continue to grow.”
Lee Jae-gwang, analyst at NH Investment & Securities, added: “With rising defense spending driven by geopolitical tensions and armed conflicts, countries are moving forward with weapons modernization projects. The global weapons trade is likely to continue expanding. Factoring in remaining Polish contracts and expected large-scale orders from the Middle East, order backlogs should maintain their upward trajectory.”