Korea-US summit boosts defense stocks

U.S. President Joe Biden, second from right, speaks during his visit to the Korean Air and Space Operations Center at Osan Air Base in Pyeongtaek, Gyeonggi Province, Sunday. On his left is President Yoon Suk-yeol. Yonhap

By Lee Min-hyung

Korea's major defense stocks rallied Monday on hopes for more exports to the United States and other developed countries, after the two countries agreed to start negotiations on a much-anticipated joint defense procurement deal.

This came in response to the first summit between President Yoon Suk-yeol and U.S. President Joe Biden last weekend. Both leaders reached a consensus in forging advanced ties in defense supply chains in tandem with their decades-long security alliance.

"Recognizing the growing potential for ROK-U.S. cooperation in the defense industry, the two leaders agree to strengthen partnerships in areas such as defense-sector supply chains, joint development and manufacturing, including beginning discussions on a Reciprocal Defense Procurement (RDP) agreement," the White House said in a statement.

Shares of domestic fighter jet manufacturer Korea Aerospace Industries (KAI) started Monday with a robust gain and closed at 48,850 won, up 3.28 percent from the previous trading day.

The company is seeking to sell its T-50A jets to the U.S. Once the RDP is clinched, expectations are that KAI will become one of the major beneficiaries in the local defense industry.

LIG Nex1, a missile defense system developer, also gained rare momentum for a rally on the same day on growing hopes for the joint defense ties between Korea and the U.S.

The stock price of the company closed with a gain of 4.1 percent at 76,200 won per share on an investor buying spree prompted by hopes that the firm may be able to diversify its revenue stream into more developed countries following the summit.

Hanwha Group's key defense affiliates also extended gains in their stock prices. Shares of Hanwha Systems, a defense electronics system manufacturer here, closed with a gain of 1.3 percent during the same period. Hanwha Aerospace, an aerospace industrial firm, also achieved a decent rebound by closing at 52,100 won per share, up 1.76 percent from the previous trading day.

"Stocks in nuclear power, defense and mechanical industries will be able to achieve faster-than-expected growth on technological assistance from the U.S.," Korea Investment & Securities analyst Kim Dae-joon said. "Players in the industries will also make smooth progress in their global expansion (after the summit)."

Yoon and Biden also pledged to team up on stabilizing the foreign exchange market, which the economist said will help drive up the overall stock performance here.

"Discussion on the foreign exchange market stabilization will help dispel lingering concerns over the Korean stock markets' imbalance between supply and demand," he said. "This will also help Korean stocks regain momentum for gradual recovery."

Most economists here have underscored the urgent need for the central banks between the two countries to reach a currency swap agreement, amid growing woes over the weakening valuation of the local currency against the dollar.

But the two sides did not announce any details during the latest summit over resuming their bilateral currency swap.

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