SOURCE: AFI
After a brief surge in stock prices fueled by regional tensions, Chinese defense companies Avic Chengdu Aircraft Co Ltd and Zhuzhou Hongda Electronics Corp Ltd saw significant declines today, reflecting a sharp reversal in investor sentiment. The stock of Avic Chengdu, the manufacturer of China’s J-10C fighter jet, slumped by as much as 9.31% to 86.93 yuan in intraday trading, closing down 7.51% at 88.66 yuan.
Similarly, Zhuzhou Hongda, the maker of the PL-15E beyond-visual-range air-to-air missile (BVRAAM), experienced a drop of over 6.5%, with some reports indicating a fall as high as 7%. These declines come just a day after the Indian military confirmed the recovery of intact PL-15E missiles within Indian territory, raising questions about the effectiveness of Chinese-made weaponry.
The sharp downturn follows a period of optimism for both companies, driven by escalating tensions between India and Pakistan. Avic Chengdu’s stock had surged over 60% since May 6, peaking at 95.86 yuan on May 12, after reports of the J-10C’s combat debut in a brief but intense aerial clash on May 7. Pakistani officials claimed their J-10C jets, equipped with PL-15 missiles, downed multiple Indian aircraft, including French-made Rafale jets, boosting investor confidence in Chinese defense firms. Zhuzhou Hongda also benefited from this narrative, as the PL-15E, an export variant of China’s advanced PL-15 missile, was reportedly used in the conflict.
However, the optimism was short-lived. On May 13, the Hang Seng China A Aerospace & Defence Index fell 3%, with Avic Chengdu and Zhuzhou Hongda among the hardest hit, declining 8.6% and 6.3%, respectively. The sell-off was triggered by a combination of factors, including a surprise ceasefire between India and Pakistan announced on May 10 and India’s claims of neutralizing Chinese-made weaponry.
The Indian military’s confirmation on May 12 that it had recovered intact PL-15E missiles inside its territory dealt a significant blow to the perceived reliability of Chinese defense technology. Posts on X and reports from Indian media outlets, including Live Mint and Business Today, highlighted images of downed PL-15E missiles, with some alleging that India’s advanced air defense systems rendered the missiles ineffective. Prime Minister Narendra Modi’s address to the nation on May 12 further amplified this narrative, as he praised India’s air defense capabilities, stating, “The world saw how Pakistan’s drones and missiles fell like straws in front of India.”
These developments undermined the earlier narrative of Chinese military prowess, which had driven the stock surges. The J-10C, marketed as a 4.5-generation fighter with advanced avionics and AESA radar, and the PL-15E, touted for its long-range precision, faced scrutiny after India’s claims. While Pakistani officials had credited the J-10C and PL-15E with successes in the May 7 clash, the lack of verifiable evidence and India’s counterclaims shifted market sentiment.
The declines in Avic Chengdu and Zhuzhou Hongda stocks were exacerbated by the broader geopolitical context. The ceasefire between India and Pakistan, brokered by the United States and confirmed on May 10, reduced expectations of prolonged conflict, which had fueled speculation about increased Chinese arms exports to Pakistan. Chinese defense stocks, which had rallied on hopes of Pakistan’s reliance on Beijing’s weaponry, faced a reality check as war fears eased.
India’s Operation Sindoor, a precision missile strike on May 7 targeting terror camps in Pakistan and Pakistan-occupied Kashmir, had initially heightened tensions and boosted Chinese defense stocks. Pakistan’s heavy reliance on Chinese weaponry, including J-10C jets and PL-15E missiles, accounted for 81% of its arms imports from 2020 to 2024, according to SIPRI data. However, India’s reported success in intercepting Chinese-made drones and missiles during the conflict shifted investor focus to the limitations of these systems.
In contrast, Indian defense stocks rallied on May 13, buoyed by Modi’s emphasis on military self-reliance and the success of Operation Sindoor. Companies like Hindustan Aeronautics Limited and Bharat Dynamics saw gains, reflecting growing investor confidence in India’s domestic defense industry. Modi’s speech, which highlighted India’s ability to neutralize Pakistani threats without succumbing to “nuclear blackmail,” further bolstered sentiment toward Indian firms.
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