Chinese defence stocks, including China Aerospace and AVIC Aircraft, experienced declines following easing geopolitical tensions between India and Pakistan. PM Modi’s statements regarding India’s defence systems contributed to the drop in stock prices.
Chinese defence stocks saw a sharp decline on Wednesday, following a recent ceasefire agreement between India and Pakistan, which eased concerns over further escalation in the region. The Hang Seng China A Aerospace & Defence Index, which tracks Chinese aerospace and defence stocks, recorded a 1.3% drop, marking its second consecutive session of losses.
Key companies such as China Aerospace Times Electronics Co. Ltd. (Long March Launch Vehicle Technology Co. Ltd.), Bright Laser Technologies, North Industries Group Red Arrow Co., Xi’an Triangle Defense, China Spacesat, Beijing Bei, and AVIC Aircraft experienced losses ranging from 1% to 4%. AVIC Chengdu Aircraft, the manufacturer of the J-10 fighter jet, saw its share price plummet more than 9% over two sessions.
The downturn in these stocks follows a previous rally driven by expectations of increased arms exports to Pakistan. However, the sentiment shifted due to easing tensions between India and Pakistan and strong messaging from India’s leadership. The Hang Seng China A Aerospace & Defence Index, which represents major Chinese defence companies, had already dropped by 2.9% the previous day.
Indian Prime Minister Narendra Modi’s address to the nation regarding Operation Sindoor further impacted market sentiment. Modi highlighted India’s successful use of indigenous defence systems, including the Akash Surface-to-Air Missile (SAM) and electronic warfare systems, during recent military engagements. These systems were reportedly effective against Chinese-made defence equipment used by Pakistan.
“The great success of Indigenous defence systems such as Akash SAM and electronic warfare has shown their reliability and effectiveness and has further strengthened the demand outlook. The successful performance of Made in India defence systems against Chinese and other defence systems in Pakistan is likely to magnify the demand for India-made defence equipment in the long run,” said Ashwini Shami, EVP & Sr. Portfolio Manager at OmniScience Capital.
Prime Minister Modi reinforced India’s defensive capabilities, stating that India’s air defence systems had neutralized Pakistan’s drones and missiles. He emphasized that India’s recent operations against Pakistan would be held in abeyance, depending on Pakistan’s future actions.
The HSCCAD Index, which tracks Chinese aerospace and defence stocks, is currently experiencing a prolonged period of stagnation, trading within a range between 4,000 and 4,500. According to Anshul Jain, Head of Research at Lakshmishree Investments, “Recent momentum is fading near the upper end, indicating persistent selling pressure. As long as the index remains within this band, upside remains limited.”
About China Aerospace and AVIC Aircraft:
China Aerospace, a key player in China’s space and defence industries, is involved in the development and manufacturing of space vehicles and military equipment. AVIC Aircraft, a subsidiary of AVIC (Aviation Industry Corporation of China), is a leading manufacturer of military aircraft, including the J-10 fighter jet.
