Top 4 Asian Defense Stocks to Watch as Regional Military Spending Surges

Investing.com-- Asian defense stocks are gaining momentum as regional military spending accelerates amid growing geopolitical tensions.

According to recent analysis from Morgan Stanley, several key players stand out in this expanding sector. Here’s a closer look at the top performers positioned to capitalize on increased defense budgets across Asia.

Morgan Stanley’s latest rankings highlight companies with strong order backlogs, innovative capabilities, and strategic positioning in high-growth segments.

South Korea’s Hanwha Aerospace (012450.KS) stands as the largest defense contractor in Asia, with an impressive 42% year-over-year top-line growth in 2024. The company’s success stems from strong global demand for its K-9 self-propelled howitzers and Chunmoo missile systems, particularly from Eastern Europe and the Middle East.

Hanwha’s vertically integrated manufacturing structure provides a competitive edge, while its expanded production capabilities in Europe and the US position it well for new international orders, analysts said.

The company’s Redback light infantry vehicle represents a significant growth opportunity, being one of the newest designs in a segment expected to expand over the next decade. Additional upside potential comes from its subsidiary Hanwha Ocean’s naval vessel production and maintenance services.

In a recent development, Hanwha Aerospace signed a significant $920 million contract with Romania to supply K-9 self-propelled howitzers and K-10 ammunition resupply vehicles.

Mitsubishi Heavy Industries (7011.T), Japan’s integrated prime defense vendor, covers land, sea, air, and space defense, with the defense business accounting for 17% of consolidated sales.

The company manufactures fighter planes, missiles, surface vessels, submarines, and unmanned vehicles. MHI is leading significant projects, including the upgraded Type 12 surface-to-ship missile and the Global Combat Air Programme (GCAP) in collaboration with the UK and Italy.

The company is advancing AI-enabled defense equipment, including combat support drones and satellite technology. MHI recently achieved a major milestone when Australia selected its upgraded Mogami-class frigate as the platform for next-generation frigates, signaling its growing export potential.

Mitsubishi Heavy Industries has also entered into a new partnership with the U.S. Department of Energy to collaborate on advancing commercial fusion energy.

ST Engineering (STEG.SI) benefits from stable recurring revenue from Singapore’s domestic defense requirements, while also capturing growing international demand driven by rising military budgets worldwide, according to Morgan Stanley.

The company has established numerous international engagements since 2021 with countries including Qatar, Estonia, Japan, UK, Germany, and Italy, alongside over 20 new partnerships.

Product successes include the Terrex 8x8 vehicle in Kazakhstan, Falaj-3 Class OPV in UAE, and ammunition sales to more than 50 countries. Management estimates a global addressable market exceeding $11 billion over the next five years, with the Middle East representing the largest opportunity at over $4 billion.

Bharat Electronics represents the premier investment opportunity in India’s defense indigenization initiative. The company benefits from regulatory changes and government policies aimed at reducing imports.

With a strong ordering outlook and increasing defense acquisition approvals, BEL is diversifying its revenue streams and expanding exports. As an experienced market leader in defense electronics, the company maintains competitive advantages including a wide product range, strong manufacturing capabilities, and high R&D spending.

BEL targets 15-17.5% revenue CAGR over the next five years, with non-defense business expected to reach 15% of revenue. Major order opportunities include the next-generation Corvette program, electronic warfare systems, and Project Kusha, an indigenous version of the S-400 missile system.

Bharat Electronics reported receiving new orders totaling Rs 3,289 crore, which include an Electronic Warfare suite for MI-17 V5 helicopters. Following this news, analysts at UBS upgraded their outlook on the company and raised their target price.

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