Chinese Defence Stocks Decline Amid India-Pakistan Ceasefire Developments
Chinese defense stocks experienced a sharp decline of up to 9% on Tuesday, as investors reacted to an unexpected ceasefire between India and Pakistan that eased tensions in the region. The Hang Seng China A Aerospace & Defence Index fell by 2.9%, with major companies like AVIC Chengdu Aircraft and Zhuzhou Hongda Electronics Corp seeing drops of 9.2% and 6.5%, respectively. This downturn follows a period of significant gains driven by speculation about increased Chinese arms sales to Pakistan amid escalating conflicts with India.
Market Reaction to Ceasefire
The recent ceasefire announcement on May 10 came after four days of intense cross-border skirmishes, which included India’s “Operation Sindoor” targeting terror camps in Pakistan and Pakistan’s counterattacks using drones. The market’s response reflects a significant shift, as investors had previously anticipated a surge in Chinese defense exports to Pakistan due to the heightened military tensions. Before the ceasefire, shares of AVIC Chengdu Aircraft had surged by up to 16%, while AVIC Aerospace saw gains exceeding 6%. The decline in stock values indicates that the market had priced in potential war-related premiums, which were quickly eliminated following the ceasefire.
Military Engagements and Armament Use
During the recent confrontations, Pakistan utilized various Chinese-manufactured weapons, including AVIC Chengdu Aircraft’s J-10C fighter jets and PL-15 air-to-air missiles produced by Zhuzhou Hongda. Pakistan’s Foreign Minister Ishaq Dar confirmed in Parliament that these Chinese jets were deployed in engagements with Indian forces. India’s military officials have presented photographic evidence of Pakistan’s use of advanced weaponry, including long-range rockets and drones, further highlighting the military cooperation between China and Pakistan.
China-Pakistan Defense Cooperation
Data from the Stockholm International Peace Research Institute (SIPRI) reveals that China has been a major supplier of arms to Pakistan, providing 81% of its arms purchases from 2019 to 2023. Chinese arms exports to Pakistan reached $5.28 billion, accounting for 63% of Pakistan’s total defense acquisitions during this period. This extensive military collaboration is underscored by the strategic partnership fostered through the $60 billion China-Pakistan Economic Corridor (CPEC), which integrates Chinese security provisions into Pakistan’s defense framework. The swift decline in defense stock values illustrates the market’s recalibration following the ceasefire, as investors reassess the implications of reduced military tensions in the region.
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