South Korea defense stocks surge as Iran war lifts demand

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South Korean defense stocks rallied sharply on Tuesday as markets reopened after a public holiday, with investors betting that escalating conflict in the Middle East will drive stronger global demand for military equipment.The surge came as fighting involving the US, Israel, and Iran entered a third day, raising expectations of sustained security spending across the Middle East and beyond.Defense names post outsized gainsHeavyweight Hanwha Aerospace, South Korea’s largest defense manufacturer and a developer of multiple rocket-launcher systems, jumped as much as 25% in early trade before paring gains to about 13.64%. Guided-missile maker LIG Nex1 soared up to 30% at one point, while Korea Aerospace Industries rose as much as 13% before trimming gains.Other defense-related names also advanced strongly. Electronic warfare systems manufacturer Victek gained more than 20%, while anti-aircraft missile components maker Firstec climbed over 15%. Ammunition producer Poongsan rose 8.2%, and Hyundai Rotem, which manufactures the K2 main battle tank, added more than 5%.The rally stood in stark contrast to the broader market. South Korea’s benchmark Kospi index fell more than 5% at one stage, briefly suspending trade to ease volatility before resuming. The index was last down 4.99%, leading losses in Asian markets as geopolitical tensions weighed on overall sentiment.Middle East conflict fuels demand expectationsThe moves followed coordinated US and Israeli air strikes on Iran over the weekend, with Tehran responding through missile and drone attacks on Israel and US bases in the region. Neighboring Middle Eastern countries, including Saudi Arabia, Iraq, the United Arab Emirates, Bahrain and Qatar, intercepted many incoming projectiles but still sustained some damage, according to Yuanta Securities Korea analyst Baik Jong-min."This incident is expected to serve as an opportunity to expand demand for air defense systems in the Middle East," Baik said in a WSJ report, noting that Saudi Arabia, Iraq, and the U.A.E. have recently been the key buyers of South Korean air defense systems.The Yuanta analyst said he sees growing demand in the Middle East to better protect oil facilities, airports and ports as well as US military bases.LIG Nex1 and Hanwha Aerospace, major developers of South Korean surface-to-air missile systems, are drawing particular investor attention, he a...

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