FTSE 100 Advances as Defence Stocks Rally on Heightened Geopolitical Tensions

The FTSE 100 advanced 21 points to reach 9,971.85 during morning trading, supported by strong gains amongst defence sector equities as investors responded to escalating geopolitical uncertainties.

BAE Systems climbed approximately 4%, whilst Babcock International rose around 3.5%, following a significant US military operation in Venezuela that resulted in the capture of President Nicolás Maduro. The operation marked the most substantial American military engagement in Latin America since the 1989 Panama invasion, according to Reuters.

The dramatic intervention has refocused market attention on geopolitical risk, despite broader equity markets demonstrating resilience. European and Asian indices posted gains, whilst oil prices exhibited mixed trading patterns. Investors increasingly appear to be positioning towards potential beneficiaries of a more volatile global security environment.

Defence contractors typically experience positive market sentiment during periods of heightened international tensions, as governments frequently expand military budgets and prioritise security procurement. Analysts suggest the US action could generate spillover effects across other geopolitical flashpoints, potentially influencing territorial disputes concerning Ukraine and Taiwan.

The perception that Washington has demonstrated renewed willingness to deploy military force may prompt governments to increase defence expenditure on military platforms, equipment and services. BAE Systems, which supplies combat aircraft, naval systems and armoured vehicles, alongside Babcock, a significant provider of engineering and support services to defence and civil programmes, stand to benefit from potential increases in risk premiums.

The index opened 39 points higher at 9,990.34, somewhat below initial projections but maintaining positive momentum following a strong start to the first full trading week of 2026 in Asian markets.

Economic sentiment received a setback from research commissioned by The Times, which polled 48 economists regarding the UK outlook. The survey indicated unemployment could reach an 11-year peak during 2026, with Labour’s fiscal policies cited as a contributing factor. Respondents suggested the economy requires two interest rate reductions to stimulate growth and mitigate the impact of measures introduced in the recent Budget.

Early market indicators from spread betting firms had suggested the FTSE 100 would open 61 points higher on Monday, propelled by a broad rally in Asian equities that extended gains in artificial intelligence and semiconductor sectors. The MSCI Asia Pacific Index surged 1.5% to establish a new record, led by technology leaders including Samsung Electronics and Taiwan Semiconductor Manufacturing Company.

Despite elevated geopolitical tensions stemming from the Venezuelan intervention, global markets maintained an optimistic tone. Gold advanced 2%, silver surged nearly 5%, and US equity futures indicated further gains. Technology stocks continued to attract investor capital, with analysts identifying artificial intelligence as the dominant market theme.

Oil prices fluctuated and the dollar strengthened, yet risk appetite remained robust. Venezuelan oil infrastructure appeared largely unaffected, even as Washington signalled intentions for continued involvement. Copper prices rallied and bitcoin climbed 1.3%, underscoring the prevailing risk-on sentiment at the start of the year.