K-Defense stock price controversy... 'Too expensive' vs 'Europe rearmament opportunity'

Defense stocks entering the overbought zone (Source: Bizwatch)

Defense industry-related stocks have surged this year but recently have stalled. The easing of the global tariff war has weakened the attractiveness of the defense industry as a 'tariff windless zone', and concerns about valuation (stock price relative to performance) due to sharp stock price increases have been cited as reasons.

On the 19th in the stock market, Hyundai Rotem closed at 1,090,000 won, down 4.3% from the previous trading day. The company's stock price rose to 1,276,000 won during the day on the 9th, but fell about 15% over six trading days. Hanwha Systems also fell 4.33%, and **Korean Aerospace Industries (-0.78%)** and **LIG Nex1 (-0.74%)** showed weakness.

Some point out the overheated valuation as an issue in the adjustment of defense stocks. Hanwha Aerospace, the leading defense stock, recorded a 92% stock price increase in the first quarter of this year and rose 33.8% in the second quarter. However, in the last month, it only rose by 2.82%, indicating a slowdown in the upward trend. Researcher Lee Kyung-min of Daishin Securities predicted, "Defense stocks are in an overheated state mid- to short-term" and expected "a buying opportunity will come after 1-2 months."

On the other hand, considering the global trend of increasing defense spending, there are opinions that they are still attractive. **Bank of America (BoA)** recently stated, "Germany has decided to expand its defense budget from 2% to 5% of GDP at the request of the United States," analyzing that this will be an opportunity for Korean defense companies. It is predicted that Europe's rearmament movement will exacerbate the global shortage of weapon supply, attracting interest from countries such as the Middle East and India in 'K-Defense'.

BoA raised Hanwha Aerospace's target stock price from the previous 9,500,000 won to 11,300,000 won based on this analysis.