South Korea's Defense Stocks Lag Market by 41%, Year-to-Date Gains Reach Only 14.9%

According to Korea Stock Exchange, South Korea's five major defense stocks—including Hanwha Aerospace, Hyundai Rotem, Korea Aerospace Industries, Hanwha Systems, and LIG Defense and Aerospace—rose an average of 14.9% year-to-date as of July 21, significantly underperforming KOSPI's 55.26% gain. Compared to their 2026 highs, the stocks faced sharp declines ranging from 33% to 67%.

Analysts attribute the weakness to delayed new contracts in the Middle East rather than expected war-driven demand. With the U.S.-Iran conflict now extending beyond four months, concerns about Middle East nations' financial strain and project delays have overshadowed initial hopes for defense spending increases. DS Investment & Securities analyst Kang Tae-ho noted that market concerns are centered on order delays, and sustained contract wins are critical for long-term performance. However, brokerages anticipate major overseas contracts expected in the second half of 2026 could revive sector momentum.