With the continuous escalation of global geopolitical tensions, market funds are now reevaluating the structural opportunities in the defense industry. According to the latest analysis by Reuters, as military spending in Europe and the United States is rapidly expanding, Asian defense companies are gradually emerging as potential “unexpected winners” by leveraging export growth and improving domestic manufacturing capabilities.
The analysis points out that major economies are simultaneously increasing their defense budgets. NATO member countries have agreed to further increase defense spending targets; Germany plans to raise related expenditures to about 3.5% of GDP by 2029; Japan has set a goal to increase related expenditures to around 2% of GDP by the fiscal year 2027. In the United States, President Donald Trump advocates for a significant increase in military budget from the current $901 billion to $1.5 trillion for the fiscal year 2027.
Against this backdrop, the performance of global defense sector stocks in 2025 has been significantly better than most industries. European defense-themed ETFs nearly doubled within a year, Asian defense stocks accumulated a growth of about 75%, and US defense stocks also rose by about 50%, outperforming the technology sector in the US, which only saw an increase of about 20% during the same period.
The increasing demand for European military equipment is increasingly being taken over by Asian suppliers, with South Korean companies standing out prominently in this aspect. According to the Stockholm International Peace Research Institute (SIPRI), South Korea has climbed to become the world’s tenth-largest arms exporting country, accounting for approximately 2% of global arms sales exports between 2020 and 2024.
More than half of South Korea’s defense exports flow to Europe, with Poland alone accounting for 46%. Some European countries, especially Poland, have in recent years procured equipment from South Korean companies more than American suppliers, primarily due to faster delivery times, competitive prices, and similar quality.
Apart from South Korea, there are 23 Asian companies among the SIPRI Top 100 global arms producers, including companies from China, Japan, India, and several Southeast Asian countries. Due to limited disclosure of military industry revenue information in China, precise revenue data is challenging to compile. However, other Asian defense companies have shown significant revenue growth over the past year.
Another driving force in the Asian defense industry comes from the high importance placed by various countries on “defense manufacturing localization.” Several ASEAN countries have set clear domestic production goals, with Indonesia planning to increase the localization rate of major defense equipment from 40% in 2026 to 60% by 2030; Vietnam aims to raise the domestic input ratio for defense radars, simulation systems, and artificial intelligence (AI) equipment to 50% by 2030.
India is seen as the most representative case. As the world’s second-largest arms importer, India set a goal as early as 2015 to achieve 70% domestic production of defense equipment by 2027. The latest data shows that by 2025, approximately 65% of India’s defense equipment is produced domestically, significantly squeezing Russia’s traditional share in India’s defense sales.
From a valuation perspective, Asian defense stocks are equally attractive. Among the 20 companies with a market value of over $10 billion in the SIPRI Top 100 arms dealers that also have market profitability forecasts, most of the companies that meet the criteria of “undervalued and high growth” are from Asia.
These include several leading South Korean companies such as Hanwha Aerospace and Hyundai Rotem, as well as China’s Jonhon Optronic and Japan’s Kawasaki Heavy Industries. In comparison, among European counterparts, only Rheinmetall from Germany possesses both valuation and growth advantages.
However, the analysis also warns that Asian defense companies are not without concerns. The Australian Strategic Policy Institute points out that in cutting-edge areas such as artificial intelligence, quantum communications, hypersonic technology, and advanced autonomous systems, European and American companies still maintain a technological edge. Additionally, vulnerabilities in the supply chain persist, as highlighted by China’s recent suspension of exports of certain rare earths and crucial “dual-use” materials to Japan, underscoring the importance of raw materials security.
In conclusion, the article emphasizes that for Asian defense companies to sustain their current high growth, they must further increase research and development investment while ensuring stable supply of key materials. With European defense stocks experiencing rapid increases and valuation pressures gradually emerging, global investors’ focus is gradually shifting towards Asian market leaders with growth potential and relative valuation advantages.