China Defense, Surveillance Stocks Do Best Since Xi's Power Grab

(Bloomberg) -- Investors have piled into stocks tied to Chinese military spending since the Communist Party moved to repeal presidential term limits.

Defense-related shares dominate the top performers list for the CSI 300 Index this week, with AECC Aero-Engine Control Co. surging 26 percent, China Avionics Systems Co. climbing 16 percent and surveillance equipment maker Zhejiang Dahua Technology Co. rising 9 percent. Overall, the stock market has fared poorly since the news was announced, with the gauge falling 1.5 percent.

Defense stocks may stay buoyant as military orders increase, according to Morgan Stanley, which said in a note investors would be watching for the aerospace and defense budget to be released during the upcoming annual legislative meetings. New orders for the home-grown C919 aircraft added to the upbeat tone for aerospace shares, it said.

Under Xi Jinping’s rule China has moved to modernize its military and alarmed neighbors by reclaiming land in the South China Sea. The government has also expanded surveillance of cities and restive areas.

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