On Wednesday, South Korean defense stocks outperformed the broader Asian equity market, as investors bet that Middle Eastern clients would resume weapons orders following the conclusion of the Iran war.

A fund manager stated that despite expectations for a de-escalation of the Iran conflict, investors are positioning for long-term security and energy themes, driving gains in defense shares. The market appears skeptical of a swift resolution to the conflict, maintaining confidence in allocations to the defense and energy sectors.

An analyst commented that if the U.S. withdraws troops from Iran, Gulf nations may need to assume a greater share of their own defense burden, potentially including the reopening of the Strait of Hormuz. This could boost procurement demand in the region, from which South Korean defense systems are expected to benefit.

It was noted that a former U.S. president said he expects the war with Iran to end within two to three weeks, suggesting that U.S. military objectives have largely been achieved and that the issue of the Strait of Hormuz would be left for other countries to address.

An analyst from Nomura pointed out that previous selling pressure on South Korean defense stocks was partly due to concerns that Middle Eastern clients were too preoccupied with the war to place orders. These concerns now appear overblown, and as risk appetite recovers and order expectations are reignited, defense stocks are rebounding along with the broader market.

Individual stock performances: LIG Nex1 saw gains of up to 28% on the Korea Exchange. Hanwha Systems rose 19%. Korea Aerospace Industries advanced 15%. Hyundai Rotem increased 13%. Firstec climbed 10%. Hanwha Aerospace gained 9.2%. Poongsan was up 8%.

The South Korean defense stock sector, which rose 4.3%, was one of the top-performing groups within the MSCI Asia Index.