The KOSPI is repeatedly setting record highs, including breaking above the 4,800 level for the first time. Domestic defence shares, in particular, have emerged as leading stocks that are overpowering market returns as the United States signals a sharp increase in defence spending.

The KOSPI closed at 4,840.74 on Thursday, setting a new all-time high, the Korea Exchange said. Even in this surge, the defence sector's run has stood out.

The top-performing ETF in the domestic market this year, KODEX K Defence TOP10 Leverage, had gained 68.69 percent as of Wednesday's close. The second-ranked PLUS K Defence Leverage was also up 67.80 percent. The products are leveraged ETFs that track twice the underlying index's daily return, delivering explosive gains as defence-related tailwinds added to the KOSPI's rise.

Returns were also strong for regular ETFs excluding leveraged products. Since the start of the year, TIGER K Defence & Space rose 33.32 percent to lead among regular defence ETFs. SOL K Defence gained 33.02 percent, PLUS K Defence rose 31.08 percent and KODEX K Defence TOP10 climbed 30.23 percent, with all posting gains in the 30 percent range. That far outpaced the KOSPI's rise over the same period.

Shipbuilding ETFs also posted gains on expectations of benefits from U.S. policy. Over the same period, SOL Shipbuilding TOP3 Plus rose 20.16 percent, KODEX K Shipbuilding TOP10 gained 19.76 percent and SOL Shipbuilding Equipment added 10.89 percent, forming a strong "security theme" together with defence shares.

Individual stocks also posted sharp gains. Hanwha Aerospace, the leading domestic defence stock, has jumped 37.32 percent since the start of the year and is moving above and below the 1.3 million won level. Hanwha Systems has risen 64.38 percent, Korea Aerospace Industries is up 33.48 percent, LIG Nex1 has gained 21.87 percent and Hyundai Rotem has added 11.17 percent, with major defence shares continuing a run of fresh highs.

Separate from the KOSPI's broader rise, the relentless rally in defence shares has come from U.S. President Donald Trump's unconventional security moves.

Trump recently said, "I decided that the 2027 defence budget should not be $1 trillion, but $1.5 trillion," signalling a build-up in arms. That is more than 50 percent higher than the previous year and a 66.5 percent surge from 2024's $901 billion.

Trump is raising tensions not only in words but also in action. He carried out a sudden military operation to arrest and deport former Venezuelan President Nicolas Maduro. He also reaffirmed his intention to buy Greenland, an autonomous territory of Denmark, and suggested he would not rule out "coercive methods".

Tensions in the Middle East surrounding Iran are also rising, increasing the perceived need worldwide for self-reliant defence and expanded armaments.

Experts see Trump's "peace through strength" line as providing a structural growth opportunity for domestic defence companies.

Dongheon Lee, a research fellow at Shinhan Investment Corp, said, "The second Trump administration is shifting away from an 'outsourcing of security' line that put cost-cutting first and is turning toward reshaping the order through physical force." He added, "Korean defence companies' global standardisation, tied to U.S. military build-up, will be a medium- to long-term re-rating factor."