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Europe’s defence sector extended a blistering rally on Monday as investors raised their bets that governments across the continent will have to boost military spending and shoulder more of their burden for their security.
In a frenzied start to trading, shares in Rheinmetall, Germany’s largest defence company, jumped 18 per cent, London-based BAE Systems was up 14 per cent in London and Leonardo climbed 15 per cent in Milan. Paris-listed Thales surged 16 per cent, while Sweden’s Saab was up 14 per cent.
The Stoxx Europe aerospace and defence index was up 7 per cent, putting it on track for its biggest one-day gain since November 2020.
The sector-wide moves follow Sunday’s summit of European leaders in London, as the UK and France lead attempts to salvage hopes of a peace deal in Ukraine following President Donald Trump’s explosive row with Volodymyr Zelenskyy in the Oval Office on Friday.
European leaders are under growing pressure to boost defence spending after the Trump administration refused to offer US security guarantees, which are widely regarded as a necessary deterrent to any future Russian aggression.
“The events over the last days made it clear to European leaders that they need to raise defence spending significantly going forward,” said Tomasz Wieladek, an analyst at asset manager T Rowe Price.
Monday’s gains add to a record-breaking run for a sector that was shunned by many European investors before Russia’s full-scale invasion of Ukraine in 2022.
The Stoxx Europe aerospace and defence index has climbed more than 30 per cent this year as the region’s governments signal they will spend more on security in the wake of the biggest realignment of US foreign policy since the second world war.
Order books of some of Europe’s defence contractors had already hit record highs in the wake of the 2022 invasion.
The gains for the sector extended beyond the region’s biggest contractors on Monday. London-listed Chemring, one of a handful of explosives manufacturers in Europe, jumped 6.5 per cent, and Norway’s Kongsberg Gruppen rose 8.5 per cent in Oslo.
Mohit Kumar, an analyst at Jefferies, said investors were convinced that “Europe has little choice but to increase defence spending”.
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