BEIJING: Defense-related stocks are likely to outperform the market on investors' expectation of China's growing military spending, which will be unveiled at the annual sessions of the country's top legislature this week.
Bucking the downward trend, Beijing Aerospace Changfeng Co, a manufacturer of high-tech military equipment gained 4.62 percent to close at 12.9 yuan ($1.89) on Tuesday, after rising for four consecutive trading days. Communication equipment maker China Spacesat Co Ltd also advanced 5.75 percent to 35.14 yuan.
The defense sector gained nearly 10 percent in February while the benchmark Shanghai Composite Index only rose about 2.1 percent in the same period.China is going to unveil its military budget for this year on Thursday at the news conference for the annual legislative sessions that open on Friday. The country's military spending is expected to reach 550 to 570 billion yuan, an increase of 15 to 18.6 percent from 480 billion yuan for 2009.
Analysts said China's listed defense enterprises in the long term will benefit from more favorable government policies and subsidies. The National Development and Reform Commission said recently that it will boost the development of the emerging strategic industries including defense and aerospace.
"The defense sector is going to speed up restructuring and mergers and acquisitions this year, which could bring trading opportunities for investors," said Ju Houlin, an analyst at China Galaxy Securities.
The total assets of China's top 10 military industrial corporations have reached 1.5 trillion yuan but only 251 billion yuan in assets are listed, which analysts said is just the tip of an iceberg that would see more capital injection in the future.
Chen Gang, an analyst at Orient Securities, said the advantage of the defense industry is that it is one of the least affected sectors by the overall economy hence it would be a safe choice for investors while uncertainties still persist in the market.
