European defense stocks surge amid plans to arm Ukraine
Photo: Rheinmetall shares rose sharply (Getty Images)
On March 3, European defense stocks surged sharply following a meeting of political leaders in the region, who expressed their support for Ukraine amid concerns about US aid, Bloomberg reports.
Stocks of Rheinmetall jumped by 8.9%, Saab AB rose by 11%, and Dassault Aviation gained 15%. The Goldman Sachs European Defense Stock Basket increased by 16%, hitting a new record, and boosting its annual growth to 63%.
The United Kingdom and France are attempting to create what UK Prime Minister Keir Starmer referred to as a "coalition of the willing" to participate in peacekeeping forces and assist Ukraine in ensuring the strength of any peace. French President Emmanuel Macron stated that the EU should allocate €200 billion to enhance its defense capabilities.
The prospect of a significant rise in defense spending in European countries has led to the growth of stocks in companies working within this sector. Rheinmetall, one of Europe's largest suppliers of materials for land forces, has already added 67% this year and has risen more than 800% since the war began three years ago.
Vincent Juvens, global market strategist at JPMorgan Asset Management, noted that state defense spending is expected to grow sharply in the coming years, even if a ceasefire in Ukraine is achieved by 2025.
"There is a broad consensus that Europe must take its future into its own hands, and large military spending is expected," he said.
Growth prospects
European stocks have shown strong growth this year, outperforming American ones. In February, Stoxx Europe 600 increased its lead over the S&P 500 since the end of November. The European benchmark outpaced its US counterpart by 10 percentage points over the past three months. The potential for peace in Ukraine has become one of the drivers of this rally.
Charles Woodburn, CEO of BAE Systems, Europe's largest arms manufacturer, stated last month that defense spending had continued to rise over the past year.
The UK aerospace and defense contractor noted that the UK's plan to increase its military budget would support major programs like submarine and frigate construction, positioning the company to benefit from arms sales to NATO members.
"We have significant growth opportunities, and we remain focused on the consistent implementation of our long-term strategy aimed at driving revenue growth, increasing margins, and generating reliable cash flow," Woodburn said.
One concern for investors is whether defense companies in the region have enough capacity to scale up production. Even if a peace agreement is reached, there is a shortage of industrial capacity, meaning order books will remain full for years.
European leaders used a security summit in London to demonstrate strong support for Ukraine. France and the UK, two long-standing allies of the US, plan to present a "Europe Plus" group to Donald Trump in the coming days, potentially including non-EU countries like Canada.
Ukrainian President Volodymyr Zelenskyy said after the summit in London that a peace agreement to end the war is still a long way off.
