Korean defense stocks fell sharply across the board as the war between the United States and Iran drags on. The declines appeared to reflect a wave of profit-taking centered on defense shares that had rebounded earlier this month, bringing short-term valuation pressures into focus.
LIG Defense & Aerospace (079550.KS) closed down 11.69% at 695,000 won the previous day, according to the Korea Exchange on the 22nd. Hanwha Aerospace (012450.KS) also fell 7.03% to 1.085 million won. Hanwha Systems (272210.KS) dropped 6.64%, Poongsan (103140.KS) 6.29%, Hyundai Rotem (064350.KS) 5.17% and Korea Aerospace Industries (047810.KS) 3.49%.
Defense stocks had rebounded quickly in recent sessions as bargain hunters stepped in following a sharp market decline. With expectations for export order backlogs and improving earnings still intact, the swift recovery in share prices appears to have strengthened the appetite for profit-taking. In fact, no clear new order-related setback or easing of geopolitical risk emerged to explain the broad weakness in defense shares.
The losses widened further in leveraged products. The N2 Monthly Leverage Defense Industry TOP5 ETN plunged 15.32%, while the Hana Leverage K-Defense TOP10 ETN and the Kiwoom Leverage K-Defense TOP5 ETN fell 13.38% and 13.23%, respectively. The PLUS K-Defense Leverage also dropped 12.16%. Because these products are designed to track about twice the decline of their underlying stocks, the correction in defense shares was amplified.
Global geopolitical tensions remain elevated. The war between the United States and Iran has continued for nearly six months, and negotiations between the two sides remain deadlocked. The United States has signaled additional sanctions against Iran, and concerns persist over disruptions to crude oil supply around the Strait of Hormuz. International oil prices have also climbed to their highest level in a month, reflecting instability in the Middle East.
Tensions on the Korean Peninsula have not fully subsided either. U.S. President Donald Trump has pursued a summit with North Korean leader Kim Jong-un and scaled back the size and duration of joint Korea-U.S. military drills, but North Korea launched a short-range ballistic missile. Pyongyang has also kept its distance, saying the scaled-back drills do not signal a change in U.S. policy toward the North.
An official in the financial investment industry said, "With the Middle East war and uncertainty on the Korean Peninsula continuing, and selling concentrated in stocks that had rebounded sharply over a short period, future orders and earnings are expected to determine the direction of share prices going forward."
