Amid Global Stock Market Plunge, 'Defense Stocks' Soar Alone... Market Capitalization Increases by 325 Trillion Won

MSCI Aerospace & Defense Index Up 13% Since End of Last Year
Trump Tariffs Trigger Correction in U.S. Stock Market
M7 Market Dominance Weakens... Defense Stocks Poised to Rise

With the boost from increased European defense spending, the stock prices of defense industry-related companies have soared, resulting in the market capitalization of defense stocks rising by approximately $224.8 billion (?325.69 trillion) compared to the end of last year. As global defense spending is expected to continue increasing due to security gap concerns triggered by the United States, further rises in related stock prices are anticipated.

According to data from Quick and FactSet, financial information providers cited by Japan's Nihon Keizai Shimbun (Nikkei) on the 10th, the total market capitalization of about 900 global companies classified under aerospace and defense reached $2.1221 trillion as of the 7th, a sharp increase of $224.8 billion, or about 12%, compared to the end of last year. The MSCI Developed Markets Aerospace & Defense Index, calculated by Morgan Stanley Capital International (MSCI) in the U.S., also closed at 830.99 on the 7th, up 13% from the end of last year.

During the same period, the market capitalization of the automobile and parts sector recorded a contrasting performance, declining by $391.5 billion (11%) to $3.048 trillion due to President Donald Trump's tariff onslaught. The U.S. stock market has also struggled amid the tariff war fallout. According to Bloomberg News, the S&P 500 index fell 3.1% last week, marking its worst performance in six months. The S&P 500 index has given up all gains made since Trump's election in November last year and returned to its previous level.

The background to the soaring defense stocks lies in the U.S., which had long played the role of the world's security guard, declaring it will no longer act as commander. The Nikkei newspaper analyzed that "the rise in defense stock prices gained momentum at the end of February," and that the emergency Paris meeting held last month, where major European countries put their heads together, acted as a catalyst for further increases in defense stocks. Expectations spread that weapons demand would rise following the European Union's (EU) agreement to push forward a "rearmament plan" aimed at securing about €800 billion.

The company with the largest market capitalization increase this year is the U.S. military aircraft engine giant GE Aerospace, whose market cap grew by $29.9 billion (17%) this year alone. Among European defense companies, the market capitalization of Rolls-Royce, a British aircraft engine manufacturer, rose 45%, while the German defense company Rheinmetall, which produces tanks, military vehicles, and ammunition, nearly doubled its market cap. Japan's Mitsubishi Heavy Industries saw its market capitalization increase by ?897.3 billion (12%).

The upward trend in defense stocks is expected to continue as global defense spending is on the rise. According to the UK-based International Institute for Strategic Studies (IISS), defense spending in 2024 is estimated to reach $2.46 trillion, a 7.4% increase from the previous year. This growth rate is higher than that of 2023 (6.5%) and 2022 (3.5%).

The market expects that as signs of a U.S. economic recession emerge and the Trump-led tariff war intensifies, the market dominance of the "Magnificent Seven (M7)"?including AI leader Nvidia?will weaken. Instead, defense-related stocks are predicted to rise. In fact, ESG (Environmental, Social, and Governance) funds, which had previously avoided investing in the defense industry, have started purchasing defense company stocks.

Senior analyst Eiji Kinouchi of Daiwa Securities diagnosed, "As AI-related stocks undergo a correction, funds seeking new opportunities are flowing into defense stocks."