Stock prices for defense companies experience a decline, as optimism grows for a Russia-Ukraine ceasefire and concerns emerge over the stocks' overvaluation.
In August 2021, South Korean defense stocks experienced a significant downturn, with companies such as LIG Nex1, Hanwha Systems, Hanwha Aerospace, Hyundai Rotem, and Korea Aerospace Industries seeing a decline.
The reasons behind this drop can be attributed to a combination of factors. The overall market sentiment shifts played a role, with profit-taking and sector rotation influencing stock price movements. The KOSPI index, for instance, showed similar trends in mid-July 2025, experiencing both rallies and pullbacks due to semiconductor gains but also profit-taking pressure.
Moreover, South Korea's military has been undergoing substantial reductions in recent years, leading to potential long-term concerns about future defense spending and procurement. This, in turn, could dampen investor sentiment towards defense stocks.
Additionally, South Korean retail investors have shown a shift away from traditional sectors like technology and possibly defense, moving towards emerging sectors such as crypto-related stocks. While this shift occurred in mid-2025, it demonstrates how changes in investor preferences can affect stock demand across sectors.
The decline in defense stocks was further exacerbated by concerns over valuation. For instance, foreign investors offloaded shares worth billions of won from various defense stocks this month. By August 8, foreign investors had sold shares worth 153 billion won of Hyundai Rotem, 71 billion won of Hanwha Aerospace, 66 billion won of Hanwha Systems, 50 billion won of LIG Nex1, and 3 billion won of Korea Aerospace Industries.
Analyst Jeong Dong-ho from Mirae Asset Securities downgraded the investment rating for LIG Nex1 to neutral, citing limited short-term upside potential due to the recent sharp rise in the stock price. Similarly, concerns over valuation contributed to the decline in LIG Nex1's shares.
Notably, LIG Nex1, a South Korean aerospace and defense firm, experienced its sharpest single-day decline since a 12% plunge on June 24, closing at 513,000 won ($370) on Friday, down 14.93% from the previous trading day. Hanwha Systems, a major defense affiliate of Hanwha Group, also saw a significant drop, closing at 52,800 won on Friday, down 6.88% from the previous trading day.
Despite being added to the Morgan Stanley Capital International's Korea Index, LIG Nex1's shares failed to see the typical lifting that comes with such an addition. The plunge in major defense stocks comes amid concerns over valuation, as they have surged between 70 percent and 300 percent since the beginning of this year.
In summary, the decline in South Korean defense stocks in August 2021 can be attributed to a combination of short-term market corrections, changing investor sentiment, and structural changes or uncertainties in South Korea’s defense industry related to demographic and military adjustments. While a specific event causing the decline was not reported, these broader market and sector contexts provide insight into the reasons behind the downturn.
- Despite the August 2021 downturn in South Korean defense stocks, there has been a notable shift in South Korean retail investors' preferences, moving away from traditional sectors like technology and possibly defense, towards emerging sectors such as crypto-related stocks.
- The decline in defense stocks, such as LIG Nex1 and Hanwha Systems, was further exacerbated by concerns over valuation, with foreign investors offloading shares worth billions of won from these stocks this month.
