Ties between Japan, China and South Korea have chilled in the past year, which is good news if you are a defense company. One such firm, Lockheed Martin (LMT), has agreed to sell South Korea 40 F-35 fighter jets for a reported sum of close to $7 billion.
“We’re making a shift in the Pacific to try and put a ring around China and their ambitions,” says Yahoo Finance Editor-in-Chief Aaron Task.” South Korea is obviously a long time ally and we want them to have, not the latest...but the second latest plans in which to do that.”
The recent history of the F-35 has not been particularly smooth. Software problems have plagued the project and delayed testing. The Marine Corps had expected delivery of the craft in 2015 but the software issues could delay delivery by as much as a year.
Additionally word came out of Italy last week that an existing order for 90 F-35’s could be frozen and scaled back if that country’s new government has their way. It was already reduced from its original order two years ago.
South Korea’s order is expected to be finalized later this year and the first jets are targeted for a 2018 delivery.
Elsewhere in Asia, HSBC reported China’s Flash PMI, a measurement of manufacturing activity, fell to an eight month low of 48.1 for the month of March. Economists had been expecting the number to be 48.7. Anything under “50” is a sign of contraction and the number is the latest in a series of data that suggest the Chinese economy is slowing down.
Still markets in China and around the world were higher on the news.
“Maybe bad news in China is good news,” says Task. “The fact that the markets in China responded positively has helped global markets in Europe and the United States say, ‘OK, yes things are bad in China but that’s a known issue. That may be priced in at these levels. Now we’re starting to price in the possibility of more stimulus out of the Chinese government.’”