Domestic defense stocks are surging day after day amid a global competition to increase defense spending sparked by U.S. President Donald Trump. Among investors, the question of "should I still buy now" is growing more urgent. While the securities industry says defense stocks have entered a mid- to long-term growth cycle of at least 5 to 10 years, it also said this is a phase to carefully time entry rather than chase short-term spikes.
According to Koscom ETF Check on the 12th, four of the top five exchange-traded funds (ETFs) with the highest returns last week (the 5th–9th) were defense ETFs. No. 1 KODEX K-Defense TOP10 Leverage (49.26%), No. 2 PLUS K-Defense Leverage (48.97%), No. 4 TIGER K-Defense & Space (24.17%), and No. 5 SOL K-Defense (23.44%). Their portfolios include Korea Aerospace Industries, Hanwha Aerospace, Hyundai Rotem, LIG Nex1, and Hanwha Systems.
Individual stocks also climbed steeply. Hanwha Aerospace rose from 946,000 won on the 2nd to 1,012,000 won in a single day, becoming a "imperial stock," and then gained 26.8% to 1,214,000 won on the 9th. Its market capitalization topped 60 trillion won, lifting its Korea Composite Stock Price Index (KOSPI) market cap ranking by one notch. Korea Aerospace Industries jumped 28.3% over the same period, and Hanwha Systems soared 39.1%.
Behind the rally is the defense spending race triggered by President Trump. On the 8th (local time), Trump said defense corporations should focus on facility investment rather than shareholder returns, and on the 9th he said the U.S. defense budget should be set at more than 50% higher, totaling $1.5 trillion (about 2,201 trillion won). After the arrest of Venezuela's President Maduro, he even hinted at the possibility of deploying military power to Greenland, heightening global security uncertainty.
The securities industry says the defense spending race is creating a structurally favorable environment for domestic defense corporations. Jung Hae-chang, an analyst at Daishin Securities Co., said, "Given U.S. isolationism, shifts in the balance of power in the North Atlantic Treaty Organization (NATO), the Middle East, and East Asia are inevitable," and "because defense expenditure tends to trigger competition among rival countries, a global export expansion environment has formed for domestic defense corporations."
There is also an outlook that the trend of military buildup will continue even after President Trump leaves office. Jung said, "Judging by posts on Truth Social and past cases of defense budget increases, the decision was not made by President Trump alone but through bipartisan agreement," adding, "the military buildup trend is likely to continue for at least 5 to 10 years."
Still, some caution over the short-term spike is warranted. Kang Hyun-gi, an analyst at DB Securities, said, "Leaders typically surge, then move sideways, and then break out again," advising, "it is relatively safer to enter after defense stocks go through a consolidation phase and attempt a renewed breakout."
There was also a view that macro indicators need to be monitored to capture shifts in the arms race trend. Kang said, "Compare the nominal GDP growth rate and the base rate; if the nominal GDP growth rate falls below the base rate, the investment cycle could contract," adding, "investors should keep checking this relationship as they approach defense stocks."
Advice also emerged on momentum by individual names. Chae Un-saem, an analyst at Hana Securities, said, "The value of Hanwha Aerospace's space business will materialize step by step depending on progress in next-generation launch vehicle development and final outcomes." With the business direction shifting in Dec. last year to a methane engine-based reusable launch vehicle, SpaceX's example of sharply increasing corporate value after succeeding with reusable launch vehicles is cited as a factor lifting mid- to long-term expectations. For Korea Aerospace Industries, expanding fighter jet exports is the key momentum. Lee Jae-gwang, an analyst at NH Investment & Securities, said, "The likelihood has risen that the Philippines, the UAE, and Egypt will adopt the KF-21."