(Bloomberg) — Asian defense stocks are attracting renewed investor interest following a global arms buildup sparked by the Iran war, with some investors seeing the sector as a longer-term growth story rather than a short-term geopolitical trade.
Three Asian stocks — South Korea’s Hanwha Systems Co. and LIG Defense & Aerospace Co., along with Japan’s Astroscale Holdings Inc. — rank among the top five defense performers worldwide this year, according to a Bloomberg gauge of aerospace and defense firms. The rally may be just the start of a longer expansion, as Middle East tensions highlight the growing indispensability of defense, according to investors, including BofA Securities and Jupiter Asset Management.
Iran war developments remain fluid amid back-and-forth over potential peace ahead of Tuesday’s ceasefire expiry. President Donald Trump said Sunday that the US Navy fired upon and seized an Iranian-flagged cargo ship in the first major encounter in a week-old US blockade of the Strait of Hormuz.
European governments are set to boost defense budgets, while Middle Eastern nations will likely prioritize military spending. Asian exporters, meanwhile, are well placed to meet demand thanks to cost advantages, flexible supply chains and faster delivery.
“There are some structural themes that have been accelerated by the Middle East war — defense is one,” said Wei Li, global chief investment strategist at BlackRock. “Our investors actually leaned into the weakness during the war when it was selling off, knowing that actually the strategic case has been reinforced and we continue to like it for the long term.”
Defense shares are benefiting from surging export demand, particularly from Eastern Europe and the Middle East, where governments are moving from passive defense to more active deterrence strategies.
“There’s still quite a lot of upside because many governments around the world haven’t been spending a very high proportion of their GDP on defense for several decades,” said Sam Konrad, investment manager at Jupiter Asset Management in Singapore. “Even if the Iran war officially ends tomorrow, Middle Eastern countries will be planning increases in their defense spending.”
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NATO is targeting defense spending equal to 5% of members’ GDP by 2035, helping to keep military budgets elevated across the region. Since 2021, European defense outlays have already climbed roughly 10% annually in dollar terms, fueled by rearmament tied to the Ukraine war, according to Bloomberg Intelligence.
Asian defense producers benefit from the region’s deep-rooted manufacturing strength, analysts said. They have shifted from being primarily buyers of weapons to developing expertise, innovating, and embedding itself in US and European supply chains, according to T.J. Thornton, head of research marketing at BofA Securities.
“Many think of Asia as a region that buys defense systems. For decades, that was the case,” Thornton said. “Asia is rapidly becoming something very different.”
Korean firms, in particular, stand out for combining competitive pricing, advanced technology, and some of the fastest delivery timelines worldwide, noted Francis Tan, Asia chief strategist at CA Indosuez Wealth Asset Management. “The structural story — European rearmament, NATO-standard kit, competitive pricing, massive backlog — is solid and multi-year,” he said.
Indian defense stocks are also emerging as a bright spot in a market that has trailed regional peers since mid-2025, lifted by government support for domestic production and local procurement. An Indian defense-sector index has gained about 14% this year.
Singapore-based ST Engineering Ltd. is another regional outperformer, up 13% since the war began.
Defense stocks have faced bouts of volatility during the Iran war, with some investors arguing that a “conflict premium” is already priced in. Bloomberg’s aerospace and defense gauge has slipped about 5.5% since the war began as investors took profits and weighed both the war’s trajectory and fragile signs of peace.
Still, some large investors remain undeterred. Gary Tan, fund manager at Allspring Global Investments, described the decline at the height of the Iran conflict as “broad portfolio de‑risking” rather than a reflection of fundamentals.
“The subsequent rebound, despite signs of potential conflict resolution, suggests investors are tactically putting risk back on,” he said.
–With assistance from Ashutosh Joshi.
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