Hanwha Aerospace and Hanwha Systems showcase the K9 self-propelled howitzer at World Defense Show 2024 held in Riyadh, Saudi Arabia
Hanwha Asset Management Co., a financial service sibling of South Korea’s major defense and aerospace developer Hanwha Aerospace Co., is seeking to list a Korean defense stocks-tracking exchange-traded fund (ETF) in the US to meet a voracious appetite for Korean defense equities amid escalating global geopolitical tensions and conflicts.
According to sources in the financial industry on Tuesday, Hanwha Asset Management applied with the US Securities and Exchange Commission (SEC) earlier this month to list ‘Plus Korea Defense Industry ETF’ in the US.
If the Korean investment firm gets approval from the SEC to list the ETF after the latter’s two-month review, its Korean defense ETF would be traded on the New York Stock Exchange early next year.
Market analysts expect Hanwha Asset’s new Korean defense ETF would attract great interest from overseas investors once it is listed in the US, citing the strong global demand for Korean defense systems, including various weapons, fighter jets and armored vehicles, amid escalating geopolitical tensions and conflicts in Europe and the Middle East.
In recent years, Korean defense and aerospace companies have reported record-high earnings thanks to brisk sales of their weapons, making their stocks outperform the broad market and peers in other industries.
Hyundai Rotem signs a deal to export its K2 Black Panther battle tanks to Poland in March 2023
The successful debut of Hanwha Asset’s Korean defense ETF in the US is expected to enhance the Korean defense stocks’ market value and brand awareness, market analysts said.
“Global investment banks have recently upped their investment in Korean defense companies,” said an official from the financial industry. “The US listing of the (Hanwha Asset’s Korean defense) ETF is expected to attract more foreign capital and make Korean defense and aerospace companies’ roadshows more appealing to foreign investors.”
TRACKING PLUS K-DEFENSE ETF IN KOREA
Hanwha Asset has teamed up with US investment company Exchange Traded Concepts (ETC) to list the Plus Korea Defense Industry ETF on the US market under the stock ticker of KDEF.
The ETF is designed based on Hanwha Asset’s already popular Plus K-Defense Industry ETF traded in Korea.
Hanwha Asset Management’s Plus K-Defense Industry ETF cheers a net asset of over 200 billion won (Courtesy of Hanwha Asset Management)
The Korean version of the ETF is composed of 10 major Korean defense and aerospace stocks, including Hanwha Aerospace, Hyundai Rotem Co., Hanwha Ocean Co. and Korea Aerospace Industries Ltd. (KAI), and its year-to-date gain is 67.61% as of Friday last year.
This is the highest year-to-date return among global ETF peers, excluding leverage or inverse, and individual stock-tracking ETFs.
Investors’ interest in Korean defense stocks has been ever-growing after Korean companies have bagged massive defense orders in recent years especially from countries in Europe amid no sign of ceasefires in the Russia-Ukraine war and the Israel-Hamas war.
In September alone, foreign investors’ net sales of Korea’s main Kospi market-listed stocks reached 3.8 trillion won ($2.8 billion) but they net purchased 251.6 billion won worth of Hanwha Aerospace shares, 75.4 billion won worth of LIG Nex1 Co. shares, 57.5 billion won worth of Hyundai Rotem shares and 46.1 billion won worth KAI shares over the same period.
OPEN THE DOOR TO THE US DEFENSE MARKET
Last month, Korea’s new orders of defense systems, such as self-propelled artillery, from abroad reached a minimum of 4 trillion won.
LIG Nex1’s lightweight torpedo (Screenshot captured from LIG Next1 website)
The country’s total export value of defense systems for 2024 is estimated to hit $20 billion for the first time.
The US listing attempt of the Korean defense industry ETF also comes at a time when Hanwha Group, envisioning to become Korea’s Lockheed Martin, a US defense and aerospace giant, is actively seeking to advance into the US, the world’s No. 1 defense market.
After winning multiple defense orders from European countries in recent years, it hopes to become the first major Korean defense company to foray into the US market, which could be its new growth momentum.
Its defense and aerospace unit Hanwha Aerospace has signed a contract with the US Army to carry out a live-firing performance test of its self-propelled howitzers as part of the US Army’s artillery modernization project.
Hanwha Ocean shipyard
Hanwha Ocean also bagged 20 trillion won worth of a maintenance, repair, and overhaul (MRO) service contract with the US Navy in August, marking the first time a Korean shipbuilder will provide MRO services for the U.S. Navy.
“Considering that the weapons ordered by the US become the global standard, not just for the West, a Korean defense company’ inroad into the US implies more than export increases,” said an official from the defense industry.
“Hanwha Asset’s attempt to list the Korean defense industry ETF is seen as its efforts to improve the awareness of Korean defense companies in the global capital market to attract more investment.”
Market analysts also expect a favorable environment would be created for Korean defense companies after the US presidential election regardless of the winner two weeks later.
By Jin-Gyu Maeng
maeng@hankyung.com
Sookyung Seo edited this article.
