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After Donald Trump threatened to withdraw the US security umbrella, Japanese and South Korea’s defense stocks have skyrocketed as European countries hit highs in hopes that they will buy more military equipment from Asia.
Stocks of Hanwha Aerospace, a major South Korean artillery company, have grown 131% this year, while Mitsubishi Heavy Machinery, Japan’s largest defense contractor, has risen 28%.
It rose 6.8% and 12.2% on Monday, after German lawmakers agreed to increase infrastructure and defense spending last week.
Wendy Pan, an analyst at Macquarie in Tokyo, said after the agreement in Germany he was “very strong in defense.” German lawmakers will vote for the 500 million euro program on Tuesday.
Monday’s rally added to a record run of East Asia’s defence stocks. Hanwha Aerospace and MHI have skyrocketed in value more than five times since the end of 2022 as the war in Ukraine spurred global development.
Shares of Korean tank producer Hyundai Rotem have risen 115.3% this year as the company expects to win supply contracts from Poland and Romania in the coming weeks. Fighter jet maker Korea aerospace industry has so far risen 72.3% in 2025.
Dongho Jeong, an analyst at Mirae Asset Securities, said Korean companies could win the order of WON154TN ($106 billion).
Europe is struggling to expand production after Russia’s full-scale invasion of Ukraine, said Aeon Fan, the vice-president of Nomura, which covers Nomura. Trump has pushed NATO countries to raise their defensive spending to 5% of GDP, and threatened to leave them vulnerable if their allies fail to comply.
The continent reduced the production of defenses after the collapse of the Soviet Union, but South Korea maintained its production capacity to counter the threat of North Korea, creating weapons at large and low cost. Since the start of the war in Ukraine, the country has become the top 10 defence exporter.
“Economies of scale are completely different,” said a fan of South Korea’s military supply chain compared to Europe.
Japanese defense companies account for less than 1% of the world’s arms exports, lacking commercial experience after the postwar pacifist constitution remained outside the military procurement process for decades.
However, it is expected that Japan will benefit from increasing demand for defense hardware from other countries after overturning its long-standing arms export ban in 2014 and further relaxing rules at the end of 2023.
Japan’s IHI, which manufactures rockets and jet engines, is up 22.3% per year, while Kawasaki Heavy Industries has increased by 32.6%, while artillery manufacturer Japan Steel Works has increased by 7.5%.
“The increase in the German budget potential for defense is huge,” Macquarie’s Pan said. “I don’t think Germany’s current defense industry is capable of sufficiently to support this development without increasing production capacity or relying on cooperation with other countries such as Japan.”
Japan’s MHI is already involved in Europe’s next-generation fighter program, working with the UK’s BAE system and Italy’s Leonardo.
It is also competing for a contract to build a frigate for the Australian Navy, but South Korea’s Hanwha revealed on Tuesday that it had acquired a substantial stake in Australian shipbuilder Australian.
Asian defence groups are increasingly speaking about export opportunities. At last week’s briefing, Mitsubishi Electric raised its 2025 defense order forecast from 500 million yen to 600 million yen ($4 billion), earning its major radar systems as key opportunities.
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CLSA analyst Edward Bouleh said Japan was “a rare case of developing an arms manufacturing base without exporting it.”
The country has pledged to raise defence spending to 2% of GDP by 2027, and in 2023 the government increased the maximum profit margin for defense contractors from 8% to 15%.
Tokyo is under further pressure to lift defense spending after Trump questioned the fairness of Japan’s mutual security agreement with the United States.
And amid a pledge of increased spending on the continent, European defence stocks have also skyrocketed in recent weeks. Shares of Rheinmetall, Germany’s largest defense company, have grown 122.6% this year, while BAE shares have risen 42.5%.
