Hanwha Asset taps US for Korean defense ETF listing

Hanwha Asset Management Co., a financial service sibling of South Korea’s major defense and aerospace developer Hanwha Aerospace Co., is seeking to list a Korean defense stocks-tracking exchange-traded fund (ETF) in the US to meet the voracious appetite for Korean defense equities amid escalating global geopolitical tension and conflict.

According to sources in the financial industry on Tuesday, Hanwha Asset Management applied with the US Securities and Exchange Commission (SEC) earlier this month to list the Plus Korea Defense Industry ETF in the US.

If the Korean investment firm gains SEC approval after the commission's two-month review, its Korean defense ETF will trade on the New York Stock Exchange from early next year.

Market analysts expect Hanwha Asset’s new Korean defense ETF to attract great interest from overseas investors once it is listed in the US, citing strong global demand for Korean defense systems, including various weapons, fighter jets and armored vehicles, amid escalating geopolitical tension and conflict in Europe and the Middle East.

In recent years, Korean defense and aerospace companies have reported record-high earnings thanks to brisk sales of their weapons, leading to their stocks outperforming the broader market and peers in other industries.

The successful debut of Hanwha Asset’s Korean defense ETF in the US is expected to enhance the Korean defense stocks’ market value and brand awareness, market analysts said.

“Global investment banks have recently upped their investment in Korean defense companies,” said an official from the financial industry. “The US listing of the (Hanwha Asset’s Korean defense) ETF is expected to attract more foreign capital and make Korean defense and aerospace companies’ roadshows more appealing to foreign investors.”  

TRACKING PLUS K-DEFENSE ETF IN KOREA

Hanwha Asset has teamed up with US investment company Exchange Traded Concepts (ETC) to list the Plus Korea Defense Industry ETF in the US under the stock ticker KDEF.

The ETF is designed based on Hanwha Asset’s already popular Plus K-Defense Industry ETF traded in Korea.

The Korean version of the ETF is composed of 10 major Korean defense and aerospace stocks, including Hanwha Aerospace, Hyundai Rotem Co., Hanwha Ocean Co. and Korea Aerospace Industries Ltd. (KAI), and has a 67.61% year-to-date gain as of Friday last week.

This is the highest year-to-date return among global ETF peers, excluding leverage or inverse, and individual stock-tracking ETFs.

Investor interest in Korean defense stocks has been ever-growing following Korean companies' massive defense orders in recent years, especially from countries in Europe amid no signs of ceasefire in the Russia-Ukraine war and the Israel-Hamas war.

In September alone, foreign investors’ net sales of Korea’s main Kospi market-listed stocks reached 3.8 trillion won ($2.8 billion) but they net purchased 251.6 billion won worth of Hanwha Aerospace shares, 75.4 billion won worth of LIG Nex1 Co. shares, 57.5 billion won worth of Hyundai Rotem shares and 46.1 billion won worth KAI shares over the same period.

OPENING DOOR TO US DEFENSE MARKET

Last month, Korea’s new orders of defense systems, such as self-propelled artillery, from abroad reached a minimum of 4 trillion won.

The country’s total export value of defense systems for 2024 is estimated to hit $20 billion for the first time.

The US listing attempt of the Korean defense industry ETF comes at a time when Hanwha Group is actively seeking to advance into the US as it aims to become Korea’s Lockheed Martin, the US defense and aerospace giant.

After winning multiple defense orders from European countries in recent years, it hopes to become the first major Korean defense company to foray into the US, the world’s No. 1 defense market, for new growth momentum.

Its defense and aerospace unit Hanwha Aerospace has signed a contract with the US Army to carry out a live-firing performance test of its self-propelled howitzers as part of the US Army’s artillery modernization project.

Hanwha Ocean also bagged a 20 trillion won maintenance, repair, and overhaul (MRO) service contract with the US Navy in August, marking the first time a Korean shipbuilder will provide MRO services for the US Navy.

“Considering that the weapons ordered by the US have become the global standard, not just for the West, a Korean defense company’s inroads into the US implies more than just an increase in exports,” said an official from the defense industry.

“Hanwha Asset’s attempt to list the Korean defense industry ETF (in the US) is seen as part of its push to improve the awareness of Korean defense companies in the global capital market to attract more investment.”

Market analysts also expect a favorable environment for Korean defense companies following the US presidential election, regardless of who wins that race in two weeks. 

Write to Jin-Gyu Maeng at maeng@hankyung.com

Sookyung Seo edited this article.