By Kwanwoo Jun

Defense stocks in key Asian markets jumped on Tuesday, buoyed by expectations that European nations will boost security spending amid fears that the U.S. could reduce its military presence.

The rally in Asian defense stocks, following the advance by European peers overnight, came as European leaders met over the weekend and pledged to boost military spending to help deter further Russian aggression in Ukraine. The special London summit on Sunday followed the rift between Presidents Trump and Volodymyr Zelensky over the U.S. push to end the war in Ukraine.

European leaders signaled more readiness to provide Ukraine with security guarantees and expand their defense capabilities, sending the shares of Rheinmetall, Germany's largest arms maker, and BAE Systems, the U.K.'s largest defense company, sharply higher Monday.

In South Korea on Tuesday, self-propelled howitzer maker Hanwha Aerospace and armored-vehicle supplier Hyundai Rotem jumped as much as 18% and 12%, respectively. Guided-missile manufacturer LIG Nex1 rose 7.4% in afternoon trading, outperforming the benchmark Kospi's 0.3% fall.

"South Korean defense companies can benefit from the expected European military buildup, given their capabilities to meet demands in Europe by supplying weaponry on time and at reasonable prices," Seoul-based DS Investment & Securities said in a note, pointing to the Korean companies' recent arms exports to Poland and other European countries.

Northern and Eastern European states could be feasible markets for South Korean defense companies, DS Investment said. It expects military spending in those regions to rise to 5.0% of gross domestic product, resulting in an estimated $56.30 billion of extra expenditure in defense.

Japanese defense-related stocks were also higher, with Mitsubishi Heavy Industries up 6.9% recently and IHI Corp. 11% higher.

In China, AVIC Shenyang Aircraft, a subsidiary of state-owned aerospace conglomerate Aviation Industry Corp. of China, was recently 2.8% higher as defense stocks led the gains while most sectors were lower amid escalating U.S.-China trade tensions. China Spacesat, which specializes in manufacturing satellite equipment, also rose 2.8%.

The U.S., which has provided more than $120 billion in aid to Ukraine since Russia's invasion three years ago, has decided to pause all military aid to Kyiv to press for a peace deal, according to a White House official Monday.

European nations contributed an additional $138 billion in military and humanitarian aid to Ukraine, according to Germany-based Kiel Institute for the World Economy.

European governments such as Denmark and the U.K. have announced boosts to defense spending. Other members of the North Atlantic Treaty Organization are expected to follow, according to NATO Secretary-General Jens Stoltenberg. The European Council will meet Thursday to discuss lifting defense spending, possibly by easing fiscal rules.

--Kosaku Narioka and Sherry Qin contributed to the article.

Write to Kwanwoo Jun at kwanwoo.jun@wsj.com

(END) Dow Jones Newswires

March 04, 2025 01:30 ET (06:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.