South Korea’s Hanwha Aerospace has become the world’s top-performing defence stock, posting a staggering 3,100% gain in just five years.
The surge reflects growing investor bets that rising geopolitical tensions, particularly under US President Donald Trump’s foreign policy shifts, will boost global demand for affordable, conventional weapons.
With a global defence spending boom underway, Hanwha Aerospace and fellow Korean defence contractor Hyundai Rotem have emerged as top performers in Asia’s equity markets.
But recent developments around governance, capital raising, and acquisitions have prompted regulatory scrutiny and investor caution.
Defence exports power Hanwha’s surge
Hanwha Aerospace, a key unit of South Korea’s seventh-largest chaebol, Hanwha Group, has rapidly expanded its defence exports, especially through its signature K9 self-propelled howitzers.
In 2023, the company secured another major contract with Poland, strengthening South Korea’s strategic arms partnerships with NATO members.
This helped Hanwha Group’s total market capitalisation nearly double to 73 trillion won ($50 billion) since the beginning of 2024.
Its rapid expansion has drawn comparisons to global peers, although Hanwha remains smaller than players like Lockheed Martin or BAE Systems.
Nonetheless, South Korea’s status as the world’s tenth-largest arms exporter, with ambitions to rise to fourth by 2027, has placed Hanwha in a strong position as global demand shifts from high-tech drones to conventional artillery.
Unlike many global firms that pivoted away from traditional warfare systems, Hanwha continued producing ground-based weapons capable of countering Soviet-era military equipment.
This strategy has found renewed relevance in light of the Russia-Ukraine conflict, where land-based warfare has highlighted the need for durable, conventional arms.
Hanwha plans $2.7 billion share sale
Last week, Hanwha Aerospace announced a 3.6 trillion won ($2.7 billion) rights offering—South Korea’s largest on record—to fund overseas investments and expand production.
The offering follows Hanwha’s recent acquisition of a 9.9% stake in Australian shipbuilder Austal Ltd., a strategic move to gain a foothold in the Pacific defence supply chain.
The funding is earmarked for building new production facilities in the US, Europe, the Middle East, and Australia.
Hanwha aims to hit 70 trillion won in annual revenue and 10 trillion won in profit by 2035.
But the announcement triggered a 16% drop in shares last Friday, driven by investor concerns over governance and capital allocation.
Korea’s Financial Supervisory Service later stated that Hanwha’s filing on the share sale lacked sufficient detail for investors.
This raised additional questions after the board approved a 1.3 trillion won acquisition of a stake in Hanwha Ocean Co.—a transaction involving affiliates linked to the Hanwha chairman’s sons.
Shipbuilding aligns with US defence goals
Hanwha’s long-term growth strategy also includes tapping into US naval programmes.
The company recently acquired Philly Shipyard in a $100 million deal, positioning itself for participation in US Navy projects valued at $1.06 trillion over the next three decades.
In November, Trump reportedly expressed interest in working with South Korea on revitalising the US shipbuilding sector during a meeting with President Yoon Suk Yeol.
If successful, Hanwha could gain access to long-term US defence contracts and strengthen its role in allied supply chains. Korean manufacturers are also known for their fast turnaround times.
Polish President Andrzej Duda highlighted this efficiency at a recent NATO event, stating that South Korean weapons could be delivered within months—a major advantage over slower-moving Western contractors.
Governance concerns follow expansion
As Hanwha’s expansion accelerates, so does regulatory oversight. The rights issue and related party transactions have drawn attention to corporate governance practices within the group.
Shareholders seeking higher returns have questioned the company’s internal decision-making, especially regarding acquisitions involving family-controlled affiliates.
While the global environment appears favourable for conventional arms producers, analysts like HSBC’s Herald van der Linde have urged caution.
He likened the defence hype to that surrounding artificial intelligence, suggesting that investor enthusiasm could eventually peak.
Still, Hanwha’s consistent output of conventional systems gives it a unique edge.
With many Western and Asian rivals shifting to advanced tech platforms, South Korea remains one of the few suppliers of traditional battlefield hardware—a niche that could be vital amid rising geopolitical instability.
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