讀後心得

Cai Mingzhang analyzed that Trump's tariff war could lead to a recession in the U.S. economy, affecting Taiwan's exports. The Taiwan stock market fell by 2,357 points in March, marking the largest single-month decline in history. Despite TSMC and Hon Hai experiencing stock price drops due to the AI bubble, related military stocks rose against the trend, with Hanxiang's stock price increasing by 20%, which is responsible for the Brave Eagle advanced trainer. Geopolitics and the Trump effect have driven military stocks' performance, with global military spending on the rise, particularly as Germany has allocated 500 billion euros for defense, leading to rapid growth in the military industrial sector. Taiwan is also increasing its defense budget, which is expected to provide stable growth momentum for the domestic military industrial industry, indicating that amidst the uncertain global economy, the military industrial sector will benefit.

The new advanced trainer aircraft of the National Defense Manufacturing program (Photo / data photo)

President Trump's tariff war could trigger a recession in the U.S., which is Taiwan's largest export market. The Taiwan Stock Exchange saw a drop of 2,357 points in March, marking the largest drop in a single month in history, and this year has also turned into negative returns. Taiwan's two major weighted stocks, TSMC and Foxconn, have continued to fall in price due to concerns over the AI bubble, leaving many investors feeling helpless. In contrast, military stocks related to defense spending have risen this year against the trend; "Hanxiang" (2634), responsible for the Brave Eagle trainer aircraft, saw its stock price rise by 20%, while aerospace parts manufacturer Shengtian (4541) surged by 50%.

Why have military stocks surged this year? The main reasons are geopolitical factors and the Trump effect. Currently, the global geopolitical focus is on the Russia-Ukraine war and the situation in the Taiwan Strait, with Trump calling for NATO member countries to increase military spending by 30%. Once the Russia-Ukraine war ends, NATO may enhance its military defense capabilities. For example, facing a bleak profit outlook this year in major industries such as automotive, energy, and telecommunications, the German parliament has passed a €500 billion fiscal spending bill dedicated to defense, which will enable rapid profit growth for the military industry over the next decade. Germany's largest defense company, Rheinmetall, has seen its stock price soar by 123% this year, surpassing Volkswagen's market capitalization, creating a situation where "building tanks is more profitable than making cars."

The European defense stocks tracked by Goldman Sachs surged by 70% in the first quarter of this year, indicating that all European countries must increase defense spending, making the military industry the biggest beneficiary, with stock prices soaring accordingly. A similar military stock model will also be replicated in Taiwan and across the Taiwan Strait. Trump, with his business persona, has heightened the arms race across the strait, benefiting the U.S.; he demands that Taiwan raise its defense budget to between 5% and 10% of GDP. Taiwan has allocated NT$647 billion for defense this year, accounting for 2.45% of GDP. If another NT$150 billion is added, the total will reach NT$800 billion, accounting for 3% of GDP, in response to the Trump administration's requests.

China's defense budget is about 1.78 trillion yuan, approximately NT$8 trillion. Although China's population is 60 times that of Taiwan, if Taiwan raises its defense budget to NT$800 billion, China’s defense budget would only be ten times that of Taiwan, whereas the previous ratio was 12 to 13 times. This year, military stocks in China's stock market have quietly risen, particularly stocks supplying naval equipment, with the government-affiliated Hainanxin seeing its stock price double since Trump's administration began. Many investors believe that increasing the defense budget will have limited benefits for the domestic military industry, as the vast majority of the budget is used for weapon procurement from the U.S. However, this assertion does not hold completely. U.S. arms manufacturer Raytheon Technologies is expected to have revenues of US$84 billion this year, and Taiwan’s military sales, such as contracts for the Patriot II and III systems, from 2007 to 2017 totaled NT$179.1 billion, equivalent to about US$5.4 billion, averaging US$500 million a year, which is considered a small client for the company.

President Tsai Ing-wen has promoted domestic defense manufacturing during her administration, and Taiwan's military industrial enterprises are relatively small; the defense budget allocated has allowed these military stocks to develop abundantly. Hanxiang is responsible for the 66 aircraft of the Brave Eagle fleet and has delivered 43 aircraft by 2024, with 18 more to be delivered this year, with each aircraft costing about NT$700 million, expecting annual revenues to reach several billion. Hanxiang's total revenue last year was NT$39.3 billion, with a high proportion coming from defense income. Additionally, the awareness of developing independent defense has become increasingly strong; the payments made to the U.S. for weapons have already reached US$20 billion. If conflicts erupt in the Taiwan Strait, there is a risk of insufficient armament, hence part of the defense budget will be invested in the domestic military industry. Even amidst increasing global economic uncertainty, the military industry is still expected to continue growing.