Shinhan Asset Management announced on the 2nd that it will list the ‘SOL K-Bangsan’ Exchange Traded Fund (ETF) on the Korea Stock Exchange. This product allows investment in the present and future of Korea’s defense industry, ranging from traditional defense companies to advanced technology firms such as warships, unmanned robots, and satellite radar.
This ETF consists of 13 stocks reflecting the latest trends in Korea’s defense industry. It includes representative defense companies such as Hanwha Aerospace, Korea Aerospace Industries, Hyundai Rotem, and LIG Nex1. Also included are Hanwha Systems and Intellian Technologies in the communication electronics field like radar and antennas, ammunition manufacturer Poongsan, and HD Hyundai Heavy Industries and Hanwha Ocean in the warship sector. Additionally, there are robot-related companies like Rainbow Robotics and Neuromeka, which are used for unmanned and high-risk operations, as well as satellite and satellite launch vehicle developers such as Satrec Initiative and Contec, which perform reconnaissance and surveillance missions.
Park Soo-min, head of the ETF Product Strategy Team at Shinhan Asset Management, said, “As the trend of deglobalization strengthens and international conflicts such as Russia-Ukraine and Israel-Hamas increase, defense spending by countries is also on the rise. K-Bangsan companies have a foundation to rapidly produce all weapon systems due to their high weapon performance relative to price and the unique security environment of the inter-Korean standoff. Therefore, profitability improvement and increased operating rates are clear, and it seems they have entered a phase of full-scale value re-rating.”
The defense industry is a B2G (Business to Government) and G2G (Government to Government) sector, so it traditionally faces limitations in independent demand creation. Due to large-scale facility investments and high fixed costs, it has shown lower profit margins and operating rates compared to general manufacturing. However, with the recent rapid growth in weapon demand and the increased role of conventional weapons in ground warfare, the sales of Korea’s five major defense companies, including Hanwha Aerospace, have recorded double-digit growth recently, demonstrating their qualities as growth stocks.
Park added, “In 2022 and 2023, Korea’s defense export amounts were $17.3 billion and $14 billion respectively, increasing more than fivefold compared to ten years ago. This is overcoming the limitations of a domestic market focus and gradually strengthening the industrial base through export expansion. Since signing a large-scale export contract with Poland in 2022, orders have been secured from Australia, Saudi Arabia, and the UAE, expanding export regions from Asia and North America to the Middle East, Europe, Latin America, Oceania, and Africa, acting as a growth driver.”
He continued, “Recently, Korean shipbuilding companies such as Hanwha Ocean and HD Hyundai Heavy Industries entering the U.S. warship MRO (Maintenance, Repair, and Overhaul) market presents new weapon system opportunities in warships for Korean defense companies and opens the possibility for Korean shipbuilders to enter the dream market of new U.S. warship construction based on references accumulated in MRO. Attention should also be paid to areas where synergies between Korean shipbuilders and defense companies can expand.”
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