India-Pakistan ceasefire: Chinese defence stocks drop up to 9% after rising during Operation Sindoor

Chinese defence stocks saw significant declines of up to 9% on Tuesday as investors retracted their positions following an unexpected ceasefire agreement that reduced tensions between India and Pakistan in South Asia.

The Hang Seng China A Aerospace & Defence Index declined 2.9%, with major components AVIC Chengdu Aircraft and Zhuzhou Hongda Electronics Corp falling up to 9.2% and 6.5%, respectively, according to an ET report. This marked a notable shift from their recent gains, which were driven by anticipated increases in Chinese arms sales to Pakistan during a brief period of heightened tensions with India.

Prior to the ceasefire, Chinese defence stocks had seen substantial gains, as investors anticipated Beijing's increased role in supplying arms to Pakistan during a potential extended conflict. On May 8, AVIC Chengdu Aircraft's Shenzhen-listed shares increased by up to 16%, while Hong Kong-listed AVIC Aerospace gained over 6%. Zhuzhou Hongda, producer of the PL-15 missiles allegedly used by Pakistani forces, also recorded significant increases.

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The market response followed the May 10 ceasefire announcement, after four days of intense cross-border attacks. India's "Operation Sindoor" targeted terror camps in Pakistan and Pakistan-occupied Kashmir, which led to counterattacks from Islamabad using drones. Pakistan's forces utilised Chinese-manufactured weapons, including drones and missiles, though India's air defence systems intercepted these.

During the confrontation, Pakistan employed AVIC Chengdu Aircraft's J-10C fighter jets in their operations. Pakistan's Foreign Minister Ishaq Dar confirmed in Parliament, "Chinese-made J-10C fighter jets were used in the engagement with Indian fighter jets."

Pakistan's military utilised PL-15 air-to-air missiles, manufactured by Zhuzhou Hongda. These armaments demonstrate the substantial military cooperation between China and Pakistan, as evidenced by arms trade statistics.

India’s military officials have presented photographic evidence demonstrating Pakistan's deployment of various weaponry. This included Chinese-manufactured PL-15 LR beyond visual range air-to-air missiles, along with Turkish-made Byker Yiha kamikaze drones and Asisguard Songar drones. The evidence also revealed their use of long-range rockets, loiter munitions and quadcopters.

"Our integrated air defence (AD) systems stood like a wall and they (Pakistan) could not breach it. Whether it's a Turkish drone or anything else, it fails in front of the technology of India," director general of air operations Air Marshal A K Bharti said.

Air Marshal Bharti revealed that Pakistani forces deployed sophisticated Chinese-manufactured armaments, specifically the PL-15 air-to-air missile, which proved ineffective in striking its intended target. "You can see the pieces of it on the screen," he stated, whilst displaying the remnants collected by Indian military personnel.

Also Read | Operation Sindoor: Can Pakistan economically afford a protracted conflict with India as tensions escalate? Here's a reality check

The Stockholm International Peace Research Institute (SIPRI) data reveals that China provided 81% of Pakistan's arms purchases from 2019 to 2023. Chinese arms exports to Pakistan reached $5.28 billion, constituting 63% of Pakistan's total defence acquisitions during this period.

The swift decline in defence stock values indicates the market's previous incorporation of war-related premiums and their subsequent elimination. The initial increase reflected investors' anticipation of enhanced Chinese defence exports to Pakistan, considering their strategic partnership through the $60 billion China-Pakistan Economic Corridor (CPEC), a significant Belt and Road Initiative venture incorporating Chinese security provisions.

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