Investors are closely monitoring European defence stocks as regional leaders convene to discuss new security measures. With growing concerns over geopolitical stability and a potential shift in NATO commitments, markets are responding swiftly to developments in Paris and Munich.
European defence companies experienced a sharp rally in Monday’s trading as anticipation builds over new defence initiatives. Italy’s Leonardo saw a 5.27% rise by 11am CET, while Germany’s Rheinmetall surged by 7.83%. Hensoldt, also based in Germany, posted a 9.81% gain, and Sweden’s Saab climbed 10.34%. France’s Thales recorded a 4.72% increase. These gains reflect heightened investor confidence as European leaders move towards bolstering regional security.
The market activity coincides with high-level discussions in Paris, where European politicians are debating enhanced military aid for Ukraine. Leaders from Germany, the UK, Italy, Poland, Denmark, Spain, and the Netherlands have gathered to address growing concerns that the European Union could be sidelined in security negotiations. European Commission President Ursula von der Leyen, European Council President Antonio Costa, and NATO Secretary General Mark Rutte are also attending the meeting, further signalling the significance of the discussions.
Momentum in defence stocks gained additional traction following statements made at the Munich Security Conference over the weekend. NATO Secretary General Mark Rutte revealed that the alliance is considering raising its defence spending target to well above 3% of GDP, a significant increase from the 2% threshold established in 2014. He also called for member nations to commit to a clear spending timetable.
Von der Leyen underscored the urgency of this investment, stating that EU members currently allocate a combined 2% of GDP to defence but must raise this by “hundreds of billions of euros” annually to meet modern security challenges. Russ Mould, investment director at AJ Bell, noted that Rutte’s comments have further fuelled the rally in defence stocks, reinforcing expectations that governments will increase spending on military capabilities.
This trend follows a broader surge in defence stocks since the onset of the Ukraine conflict, with investors betting that rising geopolitical tensions will drive sustained increases in military expenditure. In January, former US President Donald Trump urged NATO’s European members to raise their defence budgets to 5% of GDP, highlighting concerns that the US has shouldered a disproportionate burden in global security efforts.
Meanwhile, Ukrainian President Volodymyr Zelenskyy used his platform at the Munich Security Conference to advocate for the creation of an “army of Europe” in response to wavering US support. He also reaffirmed Ukraine’s stance against any peace deal negotiated without its direct involvement.
With defence budgets poised for expansion and geopolitical shifts unfolding, European defence firms stand to benefit from a sustained period of increased military investment, creating compelling opportunities for investors.
JPMorgan European Discovery Trust plc is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
