DS Investment & Securities diagnosed on the 19th that the stock prices of major European defense companies have entered a trend reversal, suggesting a high likelihood that South Korean defense stocks will follow suit and rise.

Analyst Kang Tae-ho noted, "Major European defense stocks showed a strong rebound from the 12th to the 16th, including Rheinmetall (+16%), Hensoldt (+15%), Saab (+8%), Leonardo (+8%), and Thales (+7%)."

He added, "Korean defense stocks also showed an upward trend on the 16th and are projected to enter a broader upward trend driven by the rebound in European defense stock prices."

The rally in European defense stocks is attributed to Russia and Ukraine resuming mutual airstrikes, despite U.S. President Donald Trump's announcement of an 'energy truce.' In connection with this, President Trump strongly criticized Ukraine for attacking Russian oil refineries. Meanwhile, Ukraine stated that its war-execution capabilities—such as anti-Russia drone operations—have suffered setbacks due to a sudden speed restriction imposed on 'Starshield,' the military version of the U.S. internet service Starlink.

Analyst Kang explained, "As uncertainties surrounding U.S. support for Ukraine grow, the necessity for Europe to increase its own defense spending has been highlighted. The core point is that a short-term end to the Russia-Ukraine war is difficult, and Europe cannot stop supporting Ukraine."

He emphasized, "Accounting for 8.6% of NATO's weapons imports from 2021 to 2025, South Korea has already established itself as a core supplier within Europe."

Beyond supplying Eastern and Northern Europe—regions that urgently needed equipment—advancements into core countries with large defense budgets are also accelerating, backed by the entry of the K9 wheeled self-propelled howitzer (K9MH·XM1776) into the U.S. market and K9 exports to Spain.

Analyst Kang noted, "The Warsaw Security Forum held in October emphasized that large-scale ground operations cannot be accomplished by drones alone, confirming that the procurement of latest ground weapons, such as tanks and armored vehicles, remains vital. Therefore, Romania's tank procurement project is expected to accelerate next year, and discussions regarding the introduction of Chunmoo multiple rocket launchers by various countries are anticipated to continue."

In particular, to fill the security vacuum caused by the transfer of interception assets within Europe to Ukraine, he predicted that "export discussions centered on ballistic missile interception systems (such as Cheongung-II), counter-drone systems, and surveillance and reconnaissance equipment will continue, primarily among Northern European nations."

As top picks for the defense sector, Analyst Kang selected Hanwha Aerospace [012450] and LIG Defense & Aerospace, while naming Hanwha Systems [272210] as a secondary preferred stock.

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