Asian defence stocks hit record highs amid European rearmament

Defence stocks in Japan and South Korea have hit record highs. This surge follows recent comments by Donald Trump about the potential withdrawal of the U.S. security umbrella. Investors expect European countries will start buying more military equipment from Asia. Shares of Hanwha Aerospace, South Korea's top artillery company, have jumped by 131% this year. Meanwhile, Mitsubishi Heavy Industries, Japan's largest defence contractor, has seen a 28% increase in its stock price. Both companies' shares rose significantly on Monday after German lawmakers announced plans to boost infrastructure and defence spending. Analyst Wendy Pan from Macquarie noted that there is strong positive sentiment around defence following Germany's recent agreement. German lawmakers are set to vote on a €500 billion defence programme. Asian stocks have soared more than five times in value since late 2022, driven by the ongoing war in Ukraine. South Korean tank maker Hyundai Rotem has also performed well, with a year-to-date increase of 115.3%. The company is anticipating contracts from Poland and Romania. Korea Aerospace Industries, a fighter jet manufacturer, has risen by 72.3% in 2025. Analyst Dongho Jeong from Mirae Asset Securities estimates that South Korean defence companies could secure $106 billion in orders. Europe has struggled to ramp up its defence production in response to Russia’s actions, especially after Trump urged NATO members to increase defence spending significantly. While European countries reduced their defence manufacturing after the Cold War, South Korea maintained a strong production capability to address threats from North Korea. This has positioned South Korea as a leading defence exporter since the Ukraine war began. On the other hand, Japan's defence firms have traditionally been less active in global arms exports due to pacifist policies. However, recent changes in Japan's export laws allow increased international sales. Companies like IHI and Kawasaki Heavy Industries have also seen notable stock growth this year. Experts highlight that Germany's planned defence budget increase may exceed the country's current production capacity. Japan's MHI is collaborating on Europe’s next-generation fighter jet and is bidding for contracts to supply the Australian navy. As Asian defence companies look to capitalize on these opportunities, there is rising optimism about export demand. Japan is committed to increasing its defence spending and raising profit margins for contractors. European defence stocks have also increased sharply as states pledge to boost their military budgets. Germany's Rheinmetall shares are up 122.6%, while BAE shares have risen 42.5% in recent weeks.