Chinese defence stocks witnessed a sharp decline on Wednesday, with several names falling as much as 4%, following the ceasefire agreement between India and Pakistan that eased concerns over a potential escalation in the conflict. The Hang Seng China A Aerospace & Defence Index dropped for the second consecutive session, losing 1.3%.
Key constituents of the index, including China Aerospace Times Electronics Co. Ltd. (Long March Launch Vehicle Technology Co. Ltd), Bright Laser Technologies, North Industries Group Red Arrow Co., Xi’an Triangle Defense, China Spacesat, Beijing Bei, and AVIC Aircraft, recorded losses ranging between 1% and 4%.
Only two of the 29 stocks in the index were trading in positive territory, with the remainder slipping into the red. The index had fallen 2.9% in the previous session on Tuesday.
Meanwhile, Avic Chengdu Aircraft share price crashed more than 9% in two sessions. Avic Chengdu Aircraft is the maker of J-10 fighter jets, which Pakistan Deputy Prime Minister Ishaq Dar said were used by its air force.
The recent correction comes after an earlier rally in Chinese defence stocks, driven by expectations of increased arms exports to Pakistan. However, sentiment turned bearish amid easing geopolitical tensions and strong messaging from India.
The market reacted to statements from Indian Prime Minister Narendra Modi, who addressed the nation regarding the successful completion of Operation Sindoor. The operation, launched in response to recent cross-border aggression, was hailed by Modi as a demonstration of India’s robust defence capabilities.
Over the past two days, both the Indian Army and the Prime Minister have underscored the effectiveness of indigenous defence systems, such as the Akash Surface-to-Air Missile (SAM) and electronic warfare systems, during the recent conflict. These systems reportedly performed successfully against defence equipment of Chinese origin used by Pakistan.
“The great success of Indigenous defence systems such Akash SAM and electronic warfare have shown the reliability and effectiveness and has further strengthened the demand outlook. The successful performance of Made in India defence systems against Chinese and other defence systems in Pakistan is also likely to magnify the demand for India-made defence equipment in the long run,” said Ashwini Shami, EVP & Sr. Portfolio Manager, OmniScience Capital.
PM Modi’s Message to Pakistan
Reinforcing India’s defence posture, PM Modi said, “The world saw how Pakistan’s drones and missiles fell like straws in front of India. India’s strong air defence system destroyed them in the sky itself.”
Modi described Operation Sindoor as a new paradigm in India’s counter-terrorism strategy. “It is the new normal. We have only kept in abeyance our operations against Pakistan and the future will depend on their behaviour,” Modi said in his address.
HSCCAD Index Outlook
The Hang Seng China A Aerospace & Defence Index (HSCCAD) is stuck in a prolonged range between 4,000 and 4,500, with no signs of an imminent breakout, noted Anshul Jain, Head of Research at Lakshmishree Investments.
“Recent momentum is fading near the upper end, indicating persistent selling pressure. As long as the index remains within this band, upside remains limited,” Jain said.
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