President Trump recently spent time in Asia. Many investors believe the purpose of his trip was to hammer out a trade deal with China. That was at the top of the agenda. But a key reason he was there was to encourage U.S. allies in the region to boost defense spending.
Some Asia-Pacific nations, including Japan, South Korea and Taiwan, are already doing so. That’s putting a spotlight on assets such as the WisdomTree Asia Defense Fund (WDAF). The fund follows the WisdomTree Asia Defense Index. It debuted last month and expands on the theme of Europe- and U.S.-focused defense ETFs.
The rookie ETF could have plenty of near- and long-term tailwinds because U.S. allies in the Asia-Pacific region cannot afford to sit idly by while China and North Korea devote growing portions of their national budgets to defense.
WDAF Investment Case Impressive
The fundamental case for WDAF is rock-solid, indicating investors shouldn’t get tripped by the fund’s youth. Consider the point that China is the world’s second-largest defense spender behind only the U.S. That’s not lost on countries included in the ETF’s portfolio.
“Japan’s military spending rose by 21 per cent to $55.3 billion in 2024, the largest annual increase since 1952. Its military burden reached 1.4 per cent of GDP, the highest since 1958. India’s military expenditure, the fifth largest globally, grew by 1.6 per cent to $86.1 billion. Spending by Taiwan grew by 1.8 per cent in 2024 to reach $16.5 billion,” according to the Stockholm International Peace Research Institute.
Those data points are highly relevant in evaluating WDAF. That’s because India is the ETF’s largest country exposure. And when Japan and Taiwan are factored in, those three countries combine for about half of WDAF’s geographic weight.
Japan could figure prominently in the WDAF equation. That’s because it’s coming off a low base of defense spending. For much of the post-WW II era, the country spent just 1% of GDP on military and national security. But that’s poised to change in significant fashion.
Defense Spending a Priority
Not to be overlooked is South Korea. It’s the second-largest geographic allocation in WDAF. And it’s looking to boost defense spending by 8.2% over the next year. The country’s status as a neighbor of North Korea and proximity to China confirms it needs to prioritize defense spending while indicating its renewed emphasis on defense self-reliance could be a catalyst for WDAF.
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