The last war isn't the next one; Asia and US defense…

PodcastGlobal Research UnlockedRon EpsteinOct 17

Defense demand is being driven by depleted stockpiles, urgent replenishment needs, and shortages of interceptors and solid rocket motors. The outlook for Asian and Korean defense companies includes near-term growth from export deliveries, but Korean stocks may remain volatile and defense exporters could face a later-decade gap if new orders do not replace Poland-related backlogs. Speakers also point to record U.S. defense outlays and strong fundamentals, while noting that headline risks and investor rotation can weigh on defense shares.

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Key Takeaways

Low U.S. weapons stockpiles after shipments to Ukraine, Israel, and the Middle East are driving demands for production increases of threefold to fivefold, while a global solid rocket motor shortage is creating producer backlogs. The speaker expects strong demand for missiles and munitions to persist for at least three to five years; he also says Europe is even more undersupplied than the U.S. after decades of lower investment.

The guest says multimillion-dollar missiles are economically inefficient against $60,000–$70,000 drones, so lower-cost counter-UAS products could complement—not replace—defenses against ballistic and hypersonic threats. South Korea’s M-SAM II is already serving as a complementary air-defense layer in the Middle East, prompting new inquiries and urgent replenishment demand.

The guest expects U.S. defense investment accounts, procurement, and R&D to grow by 5%–6% in a worst case or high-single-digit to low-double-digit rates in a best case, with fiscal 2027 defense spending around $1.25 trillion. He attributes recent U.S. defense-stock weakness partly to rotation toward AI and year-end portfolio movements, while arguing that record outlays and depleted consumables support the sector’s setup as 2027 approaches.

GEO-POLITICS

Interceptor Demand — South Korea’s M-SAM II has provided a complementary air-defense layer in the Middle East, prompting new order inquiries and urgent replenishment demand, mainly from Gulf regions. Korea has also signed MOUs and partnerships with Western European defense companies to produce low-cost interceptors.

“So South Korea's m Sam two, the mid surface to air missile has been one of the complementary layers that were used during the Middle East conflict this year…”—

Stockpile Replenishment — A speaker says U.S. stockpiles are very low across multiple weapons platforms after exports to Ukraine, Israel, and the Middle East. The Department of War is demanding production-rate increases of threefold to fivefold.

“Yeah…”—

TECHNOLOGY

Interceptor Economics — The guest says two interceptor units are still needed against ballistic and hypersonic missiles under the rules of engagement, while lower-cost counter-UAS products are in development. Firing a multimillion-dollar missile at a $60,000–$70,000 drone is economically inefficient because those missiles were designed for larger threats. Cheaper counters would complement, not replace, defenses against bigger threats.

“And so far, what we're we're seeing is that for the ballistic and the hypersonic missile, think due to the rules of the engagement, two units of the interceptors are…”—

ECONOMY

Defense Budget Outlook — The guest expects U.S. defense investment accounts, procurement, and research and development to grow under either midterm-election control outcome: 5%–6% in a worst case, or high-single-digit to low-double-digit growth in a best case. He expects the fiscal 2027 U.S. defense budget to be about $1.25 trillion.

“If you were to see a change in control in, in either house or both houses, defense still grows. It's just a matter of about how much…”—

MARKETS

Asia Defense Growth — Asia defense EPS growth is forecast at about 45% next year, partly reflecting a lower base and scheduled deliveries from export orders. Korean defense companies may see compelling growth for the next couple of years, but could hit an air pocket later in the decade if Poland-related backlogs are depleted and new regions, products, or large orders do not fill the gap.

“Just from the report that we have published recently, just looking at our latest global comp sheet, because the Asia and Korea defense companies come from relatively lower base and…”—

Rocket Motor Shortage — The speaker says a global shortage of solid rocket motors is creating producer backlogs. He expects strong demand for military consumables, missiles, and munitions to persist for at least three to five years.

“But now since you're moving back into a near peer threat kind of environment, nation state threats away from terrorist threats, demands have changed…”—

Korean Orders — South Korea is expanding capacity after receiving new orders from Saudi Arabia, the UAE, and Iraq. The speaker estimates the next available delivery schedule may be around 2029; potential Gulf and Western European orders could differ in product mix and duration.

“But given the new order intakes that were coming from the Saudi Arabia, UAE, and Iraq in the past two years, to fill this gap in the rest of the…”—

Defense Market Shift

The host introduces the defense market’s changing demands and asks how Asian companies can help address shortages of air-defense missiles and interceptors.

Korean Export Growth

Korean defense companies may post strong near-term growth as export orders are delivered, but sustaining growth after Poland-related backlogs requires new markets or products.

US Munitions Shortages

US stockpiles are depleted, production targets are rising sharply, and a global shortage of solid rocket motors supports several years of strong demand for defense consumables.

Korean Interceptor Orders

Korea is expanding capacity for air-defense systems and low-cost interceptors, with potential Gulf and Western European orders offering a path to offset a later-decade export gap.

US Defense Stock Weakness

Despite record outlays and expected accelerating sales growth, US defense shares have lagged amid election concerns and investor rotation; the speakers expect budgets to keep growing.

Drone Defense Economics

Low-cost drones make expensive interceptors an uneven match, but advanced missiles remain necessary for larger threats; counter-drone systems can improve the balance without changing warfare’s fundamentals.

Korean US Defense Partnerships

Korean companies are pursuing US production and land-system partnerships, while export momentum supports the broader Korea outlook despite valuation pressure and continued stock volatility.

Defense Growth Outlook

The host recaps strong global defense fundamentals, near-term Korean growth with a possible later-decade gap, and continued US growth despite election and AI-related market pressures.