Business
Asian defence firms may be surprise winners of rising geopolitical tensions: Raychaudhuri
Asian defence firms may be surprise winners of rising geopolitical tensions: Raychaudhuri
About this update from Hyundai Rotem Co.
By Manishi Raychaudhuri Geopolitical tensions were sky-high in 2025, and U.S. President Donald Trump's recent military actions in and bid for suggest the international temperature won’t be dropping any time soon. One surprising market winner from all this could be Asian defence firms.Defence expenditures are rising across the world. NATO countries committed in June to spend 2.8% of their gross domestic product on defence in 2026, increasing that to 5% by 2035. Key member Germany has an interim target of 3.5% of GDP by 2029. Japan is also planning to double defence spending to 2% of GDP by 2027, and Trump wants to boost the 2027 U.S. military budget to $1.5 trillion from the $901 billion approved by Congress for 2026.Given this backdrop, it's unsurprising that defence companies’ shares outperformed strongly in 2025. European defence exchange-traded funds almost doubled from the beginning of 2025 through early January 2026, while the high-flying U.S. tech stocks appreciated just over 20%. Asian and U.S. defence stocks were up around 75% and 50%, respectively, in that period.Looking to the next 12 months, Asian defence companies have the potential to outstrip European defence majors because they benefit from two trends: rising exports to the European Union and a sharp increase in domestic defence manufacturing across Asia as countries seek to replace imports.BOOMING EXPORTSEurope's armaments demand is increasingly being met by Asian defence companies, with South Korean firms taking the lead. The North Asian country is the world’s 10th-largest arms exporter, accounting for 2% of total arms exports from 2020-24, according to the Stockholm International Peace Research Institute (SIPRI). Over this period, 53% of South Korea’s defence exports went to Europe, with 46% going to Poland alone.Some European countries, notably Poland, are now buying more from Asian companies than from their U.S. counterparts. Timely supplies and cheaper prices for products of equivalent quality are often tilting the balance in favour of the Korean firms.South Korea is not the only game in town, however. SIPRI’s list of the top 100 arms producers features 23 Asian companies: eight Chinese, five Japanese, four South Korean, three Indian and one each from Taiwan, Singapore and Indonesia. With the exception of the Chinese firms, all have seen their revenues grow meaningfully over the past ...