European Defence Stocks Surge Amid Talks of Ukraine Pact

Military Suppliers See Billions Added to Their Value as Defence Spending Rises

European arms manufacturers are experiencing a major financial boost following discussions of a new European defence pact to support a Russia-Ukraine peace deal. The surge in defence spending has sent stock prices soaring, pushing the UK’s FTSE 100 index to an all-time high and adding billions to major military suppliers' market value.

BAE Systems and Rolls-Royce Lead the UK Market Rally

In the UK, BAE Systems saw its share price jump 17.5% on Monday, reaching a record high and adding £5.92 billion to its market capitalisation. Rolls-Royce Holdings, another key player in the defence and aerospace sector, also benefited, with its stock rising 6% during the day.

The effects rippled across the London Stock Exchange, with the FTSE 250 index—which includes mid-sized British companies—also climbing. Some of the biggest gainers included:

• QinetiQ (defence technology) – Up 10.3%
• Babcock International (defence support services) – Up 9.3%

European Defence Stocks See Record Gains

It wasn’t just British defence firms that saw massive growth—arms manufacturers across Europe enjoyed similar gains:

• Rheinmetall (Germany’s largest defence company) – Stock surged 18%
• Leonardo (Italy’s aerospace and defence giant) – Up 15%

The market rally came after European leaders met in London to discuss greater financial and military support for Ukraine. The discussions focused on increased defence spending and a potential EU-backed peace deal, sparking optimism among investors.

What’s Driving This Surge in Defence Stocks?

The stock price surge is tied to key geopolitical developments:

1. UK’s Financial Commitment to Ukraine
   • Prime Minister Sir Keir Starmer announced a new loan to Ukraine alongside a £1.6 billion investment in missile production in Belfast.
2. Talks of a European Coalition for Defence
   • Starmer proposed a European-led coalition to guarantee peace in Ukraine, requiring higher military spending across the continent.
3. Tensions Following US-Ukraine Diplomatic Fallout
   • The meeting between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy ended in a diplomatic breakdown, prompting Europe to take a more active financial and military role.
4. UK’s Increased Military Budget
   • The UK has already committed to raising military spending to 2.5% of GDP by 2027.
   • Chancellor Rachel Reeves announced £2.26 billion in additional aid for Ukraine, funded by profits from frozen Russian sovereign assets.

Conclusion: What’s Next for Defence Stocks?

With US military aid to Ukraine now suspended, European nations are expected to fill the gap, further boosting arms manufacturers. Investors are now speculating whether defence stocks will continue climbing or if markets will stabilise once geopolitical tensions ease.

If European governments follow through on their promises of increased military spending, stocks like BAE Systems, Rheinmetall, and Leonardo could see further gains. However, any unexpected peace negotiations or de-escalation of the war could cool off this momentum, leading to potential price corrections.

For now, defence firms are among the biggest winners in the stock market, and as long as military budgets keep rising, so too could their valuations.

Sources: (Sky.com, ChatGPT)