France, Germany, and UK plan unprecedented post-war military spending to support Ukraine.
Shares of European arms giants have risen significantly on the prospect of increased military spending by European Union countries.
The market reacted to a European leaders’ summit planning a boost in military spending to support Ukraine, sparking a rally in some of the world’s largest Europe-based arms companies.
On March 3, shares in Rheinmetall, Germany’s largest defense company, jumped 13.7 percent while Leonardo climbed 16 percent in Milan. France’s Thales surged 16 percent, and Britain’s BAE Systems jumped 14.5 percent.
The gains pushed the STOXX Aerospace and Defence index, composed of European companies linked to military defense, up 1.1 percent, a record high.
Germany’s blue-chip index, the DAX, logged its biggest one-day jump since November 2022 and closed at a record high, alongside Britain’s benchmark index, the FTSE.
“The market is rising on this optimism over defence spending and potential for a peace plan which is not only boosting defence stocks, but it’s also boosting optimism broadly,” said Fiona Cincotta, a senior market analyst at City Index.
The March 2 summit in London came after Ukrainian President Volodymyr Zelenskyy’s meeting in the White House on Feb. 28 ended in a heated discussion.
President Donald Trump has told European leaders they need to step up military support for Ukraine in preparation for a peace deal with Russia.
Analysts said recent events have “turbocharged” the EU towards higher defense spending.
In March last year, a report from JPMorgan analysts in Proactive Investors, said that the continent’s rearmament cycle would last for at least a decade.
JPMorgan analysts said on Monday that the events of the last two weeks have “turbocharged” their thesis of a European rearmament cycle.
“There are 30 European countries in NATO and we expect many of them will soon commit to much higher defence spending,” they said in a note.
RBC Capital Markets Global Macro Strategist Peter Schaffrik said: “It is an inflection point and Europe realises it needs to do the heavy lifting [on defense and security].”
“The German elections have opened the door for more spending. The whole Zelenskiy-Trump meltdown has fast forwarded everything,” he added.
By Owen Evans
