|

Dogfight dividend: China’s defense stocks soar after jet showdown buzz

Investors are chasing narratives again, and this week China’s defense industry took a bold step into the spotlight. Some are calling it the sector’s 'DeepSeek moment'—a reference to the Hangzhou-based AI startup that sent Chinese tech names flying earlier this year by going toe-to-toe with OpenAI at a fraction of the cost. But this time, it’s not software stealing the show—it’s fighter jets.

Pakistan’s military claimed its Chinese-made J-10C aircraft shot down five Indian jets, including French-made Rafales and Russian-sourced MIG-29s and Su-30s. India hasn’t confirmed the report, and evidence is sparse—but that didn’t stop Avic Chengdu Aircraft Co., the J-10C’s maker, from rocketing 20% higher on Monday. Meanwhile, Dassault Aviation, maker of the Rafale, slipped over 6%.

It’s the first time modern Chinese jets have reportedly clashed with Western aircraft in combat, and on paper, Beijing appears to have walked away with bragging rights. But let’s add some altitude to this narrative. The J-10Cs didn’t face F-35s, F-22s, or even the U.S. Air Force’s F-15EX Strike Eagle II—the much improved version of the long-reigning non-stealth king of the skies. In other words, this wasn’t the A-League just yet.

Still, investors are pricing in a new script. China's defense industry has long lagged the U.S. and Europe—accounting for just 5.9% of global arms exports compared to America’s 43%. But now, with real-world footage (or at least headlines) showing Chinese-built jets holding their own, some are speculating that Beijing might finally have a product to pitch to the Global South. West Africa is already a case in point—China now supplies over a quarter of the region’s arms.

While the market loves a good story, savvy investors know to look beyond the first act. Just like DeepSeek hasn't dethroned OpenAI, the J-10C hasn't unseated the Western air superiority club. Yet that hasn’t stopped speculative capital from circling. Traders are betting that this combat buzz could open doors for new export orders, and they're front-running the earnings curve.

European defense stocks have already taught us this playbook. French and German names have exploded in value this year, with Dassault, Rheinmetall, and Hensoldt riding the wave of rising NATO budgets and reduced U.S. global policing. China’s military-industrial complex could be next in line—especially with limited publicly listed options and increasing interest from global funds seeking geopolitical hedges.

Ultimately, the Pakistan dogfight might be more marketing than milestone, but perception matters. China’s friendship with Islamabad has given its jets a stage, and for arms exporters, there’s no better ad than combat footage—even if the competition wasn’t top-tier.

This could be the start of a breakout narrative for China’s defense industry—but let’s keep it grounded. The J-10C may have caught a tailwind, but it's still flying in a lower airspace until it goes head-to-head with the F-35 or F-15E.

Author

Stephen Innes

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

More from Stephen Innes
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD moves sideways below 1.1800 on Christmas Eve

EUR/USD struggles to find direction and trades in a narrow channel below 1.1800 after posting gains for two consecutive days. Bond and stock markets in the US will open at the usual time and close early on Christmas Eve, allowing the trading action to remain subdued. 

GBP/USD keeps range around 1.3500 amid quiet markets

GBP/USD keeps its range trade intact at around 1.3500 on Wednesday. The Pound Sterling holds the upper hand over the US Dollar amid pre-Christmas light trading as traders move to the sidelines heading into the holiday season. 

Gold retreats from record highs, trades below $4,500

Gold retreats after setting a new record-high above $4,520 earlier in the day and trades in a tight range below $4,500 as trading volumes thin out ahead of the Christmas break. The US Dollar selling bias remains unabated on the back of dovish Fed expectations, which continues to act as a tailwind for the bullion amid persistent geopolitical risks.

Bitcoin slips below $87,000 as ETF outflows intensify, whale participation declines

Bitcoin price continues to trade around $86,770 on Wednesday, after failing to break above the $90,000 resistance. US-listed spot ETFs record an outflow of $188.64 million on Tuesday, marking the fourth consecutive day of withdrawals.

Economic outlook 2026-2027 in advanced countries: Solidity test

After a year marked by global economic resilience and ending on a note of optimism, 2026 looks promising and could be a year of solid economic performance. In our baseline scenario, we expect most of the supportive factors at work in 2025 to continue to play a role in 2026.

Avalanche struggles near $12 as Grayscale files updated form for ETF

Avalanche trades close to $12 by press time on Wednesday, extending the nearly 2% drop from the previous day. Grayscale filed an updated form to convert its Avalanche-focused Trust into an ETF with the US Securities and Exchange Commission.