Defense & Rearmament

Defense and rearmament is the investment cycle that began when governments started raising military budgets and rebuilding stockpiles after Russia’s 2022 invasion of Ukraine. This pillar starts with South Korea, the exporter that has gained the most share, on the strength of fast delivery, local production, and the offset deals that win foreign orders.

Key takeaways
  • The defense and rearmament theme follows the global re-armament cycle that accelerated after Russia's 2022 invasion of Ukraine: world military expenditure rose 9.4% in real terms to $2,718 billion in 2024, the steepest annual increase since at least the end of the Cold War (SIPRI).
  • The spending is codified, not episodic: at the June 2025 Hague summit, NATO allies committed to invest 5% of GDP in defense annually by 2035, split into at least 3.5% for core military requirements and up to 1.5% for infrastructure and the defense industrial base.
  • South Korea is the standout exporter: its arms-export volumes more than doubled from 2010-14 to 2020-24, lifting it to the world's 10th-largest exporter with a 2.2% share, on the strength of fast delivery, local production, and offset deals.
  • Demand shows up in revenue: the four Korean firms in SIPRI's Top 100 grew combined arms revenue 31% to $14.1 billion in 2024, with Hanwha up 42%.
  • This pillar starts with the Korea defense industry (Hanwha Aerospace, Hyundai Rotem, KAI, LIG Nex1) and the offset agreements that win export orders.

How big is the rearmament cycle?

Start with the budget line, because the budget line is the whole thesis here. World military expenditure rose 9.4% in real terms to $2,718 billion in 2024, the steepest year-on-year increase since at least the end of the Cold War and the tenth consecutive annual rise (SIPRI). Spending grew in every region, and Europe grew fastest: Germany’s budget alone jumped 28% to $88.5 billion, making it the world’s fourth-largest spender, and the top five spenders together accounted for 60% of the global total.

The spending is now codified, not episodic. At the June 2025 Hague summit, NATO allies committed to invest 5% of GDP annually in defense by 2035, split into at least 3.5% for core military requirements and up to 1.5% for infrastructure, resilience, and the defense industrial base (NATO). That is more than double the old 2% guideline from 2014, and it converts a panic into a decade-long procurement program.

What is driving South Korea’s defense rearmament cycle?

A war in Europe ended the long peace dividend. Governments that had run down their militaries for thirty years began rebuilding them, and the orders land first with whoever can deliver, which is why a handful of national champions have captured outsized demand.

South Korea is the clearest case. SIPRI’s data shows its arms-export volumes more than doubled from 2010-14 to 2020-24, lifting it to the world’s 10th-largest exporter with a 2.2% share (SIPRI). The revenue followed: the four Korean firms in SIPRI’s Top 100 grew combined arms revenue 31% to $14.1 billion in 2024 (SIPRI).

South Korea’s largest arms company, Hanwha Group, recorded a 42 per cent increase in its arms revenues in 2024, with more than half coming from arms exports.

— Nan Tian, Director, SIPRI Military Expenditure and Arms Production Programme (SIPRI)

Why South Korea, and what is an offset?

Buyers under pressure want kit fast and they want jobs at home. Korean firms offer both: large production capacity that delivers in months, and offset packages that move technology and assembly into the customer’s country. Poland’s purchases are the template, a 2022 framework worth roughly $15 billion covering K2 tanks, K9 howitzers, and FA-50 jets (KED Global), followed by a 2025 K2 order valued near $6.5 billion (Defense News). The jet line is exporting too: Poland ordered 48 FA-50s for about $3 billion, and the Philippines added a $700 million deal for 12 more (KED Global).

The momentum is national policy. Korea exported $15.4 billion of defense goods in 2025, up about 60% in a year (Seoul Economic Daily), and Seoul has set a goal of becoming the world’s No. 4 arms exporter by 2027 (The Korea Times).

How do the Defense & Rearmament clusters fit together?

The hub of this pillar is the Korea Defense Industry concept, and its securities map the supply chain from prime contractor to ammunition line. On land systems, Hanwha Aerospace builds the K9 howitzer and Chunmoo rocket launcher and Hyundai Rotem builds the K2 tank, the two platforms behind the Polish framework. In the air, Korea Aerospace Industries makes the FA-50 light combat jet. Guided weapons and sensors sit with LIG Nex1 and Hanwha Systems, which supply the missiles, radars, and electronics that platforms carry. Behind them, Poongsan provides the artillery shells and ammunition every stockpile rebuild consumes, and SNT Dynamics supplies transmissions and weapon components. The naval leg runs through Hanwha Ocean and HD Hyundai Heavy Industries, the shipbuilders bidding on submarine and frigate programs, which also makes this cluster the bridge to the allied manufacturing theme. The defense offset glossary entry explains the deal structure that wins these orders.

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Which concepts explain this theme?

Which companies validate the thesis?

Which terms need disambiguation?

How can investors access Defense & Rearmament?

The Korea Defense Industry concept covers the listed Korean leaders, from Hanwha Aerospace and Hyundai Rotem to KAI and LIG Nex1. The Korea Defense Industry Index is tracked by the U.S.-listed PLUS Korea Defense Industry Index ETF (KDEF). As always, check fees, holdings, and risk before investing.

These references describe index-tracking relationships as a matter of fact and are not a recommendation to buy any product. Akros, as the index provider, may receive licensing fees from product sponsors. Review the product's prospectus before investing.

What are the risks of Defense & Rearmament?

Defense is policy-driven, and policy can turn. A ceasefire, a budget fight, or a change of government can slow orders, and export deals carry approval and financing risk that can delay revenue for years. SIPRI also flags delivery constraints, from cost pressure to critical-material sourcing, that can squeeze margins even as revenue grows (SIPRI). Many of these names have already re-rated sharply, so the easy gains may be behind them. The backlog is real, but it is not guaranteed.

Frequently asked questions

What is the defense and rearmament theme?

It is investing in the companies that make weapons, platforms, and military systems as governments raise defense budgets and rebuild stockpiles. The cycle accelerated after 2022, and the most visible export winner has been South Korea, whose Top 100 arms makers grew combined revenue 31% to $14.1 billion in 2024 (SIPRI).

Why are defense stocks in a multi-year up-cycle?

Russia's 2022 invasion of Ukraine pushed European and Asian governments to raise defense spending and refill depleted stockpiles, a process that plays out over years of contracts. South Korean export volumes more than doubled from 2010-14 to 2020-24 (SIPRI).

Why is South Korea winning defense export orders?

Korean firms combine fast delivery, large-scale local production, and generous offset packages that transfer technology and build factories in the buyer's country. Poland's 2022 framework worth roughly $15 billion, with a 2025 follow-on $6.5 billion tank order, is the flagship example (Defense News).

How much is the world spending on defense?

World military expenditure rose 9.4% in real terms to $2,718 billion in 2024, the steepest annual increase since at least the end of the Cold War and the tenth consecutive rise (SIPRI). At the June 2025 Hague summit, NATO allies committed to spend 5% of GDP on defense annually by 2035, at least 3.5% of it on core military requirements (NATO).

How can you invest in the defense theme?

The Korea Defense Industry concept covers the listed Korean leaders. The Korea Defense Industry Index is tracked by the U.S.-listed PLUS Korea Defense Industry Index ETF (KDEF). As always, check fees, holdings, and risk before investing.

Sources & references

  1. SIPRI Top 100 arms producers see combined revenues surge · SIPRI, 2025-12-01
  2. Can the growth trend in South Korea's arms industry last? · SIPRI, 2025-03-01
  3. Poland doubles down on South Korean tanks with $6.5 billion deal · Defense News, 2025-08-01
  4. Korea's Defense Exports Hit $15.4 Billion in 2025 · Seoul Economic Daily, 2026-03-24
  5. Unprecedented rise in global military expenditure as European and Middle East spending surges · SIPRI, 2025-04-28
  6. The Hague Summit Declaration · NATO, 2025-06-25
  7. Poland signs framework deals for Korean tanks, howitzers and jets · The Korea Economic Daily (KED Global), 2022-08-26
  8. KAI signs $700 million FA-50 deal with the Philippines · The Korea Economic Daily (KED Global), 2025-06-04
  9. Defense chief urges efforts to back Korea's goal of No. 4 arms exporter · The Korea Times, 2026-01-14