讀後心得

Financial expert 蔡明彰 pointed out that the trade war initiated by Trump could lead to an economic recession in the United States, which is Taiwan's largest export market. The Taiwanese stock market experienced its largest monthly drop in March. Despite the decline in stock prices for TSMC and Foxconn, the defense stocks rose against the trend, with Hanxiang's stock price increasing by 20% year-on-year, and Shengtian rising by 50%. The strong performance of defense stocks can be attributed to geopolitical tensions and the increase in defense spending promoted by Trump. European defense stocks have already risen significantly, indicating that Taiwan may face a similar situation. The Tsai Ing-wen government is promoting domestic military manufacturing, which has benefited local defense companies, and it is expected that the defense industry will grow steadily amidst an uncertain global economic environment.

The new type of advanced trainer aircraft of the Air Force produced by the national defense industry (photo/data photo)

President Trump's trade war could lead to an economic recession in the United States, which is Taiwan's largest export market. As a result, the Taiwan stock market experienced a significant drop in March, marking the largest monthly decline in history and turning this year's investment return rate negative. The two major heavyweights in the Taiwan stock market, TSMC and Hon Hai, were impacted by concerns over the AI bubble, causing their stock prices to decline consecutively, trapping many investors.

In the military stock sector, other stocks saw significant declines, while defense-related stocks rose against the trend. The stock price of "Hanxiang" (2634), responsible for the Brave Eagle advanced trainer aircraft, increased by 20% this year, while aerospace parts company Sheng Tian (4541) surged by 50%.

Why are military stocks performing exceptionally well this year? The primary reasons can be attributed to geopolitical tensions and the Trump effect. Currently, the two main focal points of global geopolitics are the Russia-Ukraine war and the tensions across the Taiwan Strait. Trump has urged NATO members to increase military spending by 30%, and after the conclusion of the Russia-Ukraine war, NATO will prioritize the military security of Europe. Taking Germany as an example, the profit outlook for key industries like automotive, energy, and telecommunications is poor this year; the German parliament has passed a €500 billion fiscal expenditure bill to support defense, indicating rapid growth in the military industry over the next decade.

Germany's largest military company, Rheinmetall, has seen its stock price soar by 123% this year, surpassing the market value of Volkswagen, leading to a phenomenon where "building tanks is more profitable than building cars." European defense stocks tracked by Goldman Sachs surged by 70% in the first quarter, indicating that all European countries must increase their defense spending, making the military industry the biggest beneficiary, with stock prices skyrocketing. The military stock model in Europe may also be replicated across the Taiwan Strait.

Trump's business personality has intensified the arms race across the Taiwan Strait, allowing the U.S. to benefit. The U.S. is now asking Taiwan to raise its defense budget to 5% to 10% of its GDP. Taiwan has allocated NT$647 billion for its defense budget, accounting for 2.45% of its GDP, and plans to increase this by an additional NT$150 billion, bringing the total budget to NT$800 billion, or 3% of GDP. In comparison, China's defense budget this year is 1.78 trillion RMB, about NT$8 trillion. Although China's population is 60 times that of Taiwan, with its defense budget being ten times greater than that of Taiwan, when Taiwan plans to raise its defense budget to NT$800 billion, it has historically been about 12 to 13 times less.

With the quiet rise of military stocks in mainland China this year, particularly those supplying naval equipment, such as Hai Lan Xin, since Trump took office, stock prices have already doubled. Most investors believe that increasing the defense budget will have limited benefits for the domestic military industry because the vast majority of the defense budget will be spent on purchasing weapons from the U.S. This view is not entirely accurate; American arms manufacturer Raytheon Technologies has an estimated revenue of $84 billion this year, while Taiwan's total procurement quantity from Patriot missile manufacturers over the past ten years is approximately NT$179.1 billion, averaging $500 million annually, which is not a large customer for this company.

The scene during the commissioning of the 10,000-ton-class Yu Shan-class ship on September 30, 2022 (photo/data photo)

President Tsai Ing-wen has promoted the "national defense industry" and "national shipbuilding" during her tenure. Due to the relatively small scale of domestic military enterprises, a part of the defense budget will directly benefit these military stocks. The Brave Eagle fleet, overseen by Hanxiang, consists of 66 aircraft, of which 43 are expected to be delivered by 2024. This year, 18 more are planned for delivery, with each costing around NT$700 million, resulting in total revenue exceeding NT$10 billion. Hanxiang had a revenue of NT$39.3 billion last year, with a significantly high proportion from defense revenue.

Furthermore, Taiwan has already paid up to $20 billion for weaponry, but the U.S. has not yet delivered the related arms. If a war breaks out across the Taiwan Strait, there may be a risk of weapon shortages; therefore, part of the defense budget needs to be invested in the domestic military industry. Amidst global economic instability, the military industry is expected to achieve continuous growth.