SEOUL — South Korean defense shares outperformed the wider market on Friday as investors sought geopolitical hedges following renewed hostilities in the Middle East, while export bellwethers in the auto and shipbuilding sectors came under pressure.
The benchmark Kospi slipped 0.8 percent to 2,647.42, snapping a three-day winning streak. In contrast, the sectoral defense index gained 4.9 percent, led by a 6.1 percent surge in Hanwha Aerospace and a 5.4 percent jump in LIG Nex1. Hyundai Motor and Kia ended down 2.0 percent and 1.7 percent, respectively, and major shipbuilder HD Korea Shipbuilding & Offshore Engineering lost 3.2 percent.
“Traders rushed into military hardware names as a textbook safe-haven play after reports of drone and missile exchanges between Iran-backed groups and Israel,” said Kim Beom-seok, strategist at Mirae Asset Securities. “Sectors that rely on discretionary global demand, such as autos or shipbuilding, tend to be first in line when oil prices spike and freight routes look uncertain.”
Brent crude briefly topped US$88 a barrel overnight amid concerns that shipping lanes through the Strait of Hormuz could be disrupted. South Korea imports nearly three-quarters of its crude from the Middle East, leaving manufacturers exposed to higher input costs.
Shipbuilders also faced profit-taking after a 30 percent rally year-to-date. “Valuations look stretched just as the macro backdrop turns risk-off,” an equity sales desk at a European bank noted in an email to clients seen by The Korea Times.
Market observers said the rotation could persist if geopolitical shocks prove prolonged. “Defense contracts are usually government-backed and less cyclical. If Washington and Seoul increase weapons orders, earnings visibility improves,” said Park Ji-yeon, a defense-industry analyst at KB Securities.
Still, some fund managers warned against chasing short-term spikes. “We have seen similar knee-jerk bids after previous flare-ups in the Persian Gulf that faded once diplomacy kicked in,” cautioned Lee Hyun-woo, chief investment officer at Han River Asset Management.
Looking ahead, analysts will monitor any retaliatory strikes in the region, next week’s OPEC+ meeting and first-quarter earnings from Hyundai and Samsung Heavy Industries for clues on whether the risk-off trade has legs. A government supplementary budget, currently under National Assembly review, earmarks ₩2.2 trillion for defense procurement and could provide another catalyst for contractors if passed before summer.