|

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:

Editor's Picks

GBP/USD holds above 1.3350 with the 200-day SMA capping gains

The British Pound appreciates against the US Dollar on Tuesday to trim previous losses and return to the 1.3375 area, aiming to retest resistance at the key 200-day Simple Moving Average. This is a popular indicator, which lies a few pips below 1.3400 and has been capping Pound’s recovery over the last two weeks.

EUR/USD holds gains near 1.1400 ahead of US CPI

EUR/USD extends gains and retakes 1.1400 in the European session on Tuesday. The US Dollar sees a profit-taking pullback, supporting the pair's rebound. However, the potential upside for the pair might be limited amid renewed US military strikes against Iran and ahead of the US CPI data and Fed Chair Warsh's testimony.

Gold sticks to gains above $4,000 ahead of US CPI, Fed's Warsh

Gold trims a part of its modest intraday recovery gains and remains within striking distance of a nearly two-week low touched earlier this Tuesday. The commodity, however, sticks to a positive bias above the $4,000 psychological mark through the first half of the European session amid mixed cues.

Major Altcoins: XRP, ADA and SOL remain vulnerable as bearish grip tightens

Major altcoins in the crypto market, such as Ripple, Cardano, and Solana, are trading in the red on Tuesday, extending their 2% to 3% decline from the previous day. The technical outlook for XRP, ADA, and SOL shows a near-term bearish bias, with prices trending below their respective 50-day EMAs.

US CPI data set to show inflation cooled in June due to tumbling fuel prices

The US Bureau of Labor Statistics will publish the June Consumer Price Index data on Tuesday. The report is expected to show a decline in consumer inflation, driven by the easing of crude Oil prices following the ceasefire announcement between the United States and Iran.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.