The rise in defence stocks amid european military aid promises for ukraine

The value of British and European defence stocks soared as markets reacted to a commitment from European leaders to increase defence spending in light of the Russian threat in Ukraine and elsewhere. Following meetings over the weekend between European leaders and President Zelensky, investors rushed to buy shares in defence companies, resulting in sharp market gains.

By the close of trading in London, BAE Systems, one of the UK’s leading defence manufacturers providing warships, submarines, and fighter jets, saw its shares climb by 14.6 per cent to reach £16.12. This surge valued the company at £48 billion. Rolls-Royce, renowned for supplying engines for military aircraft and naval vessels, built on its previous strong performance, with shares rising by 4.4 per cent to 776.75p, giving the company a market value of £66 billion.

Defence companies across the sector benefited from this momentum. Qinetiq, which supplies advanced military technologies, saw its shares rise by 12.9 per cent to 456.5p. Babcock, a key contractor for the Royal Navy, achieved a 6 per cent gain, bringing its shares to a seven-year high of 710.5p.

Analysts at Jefferies highlighted expectations that NATO may announce a new target of three per cent of GDP for defence spending at its upcoming summit in June. This would reflect a European-wide push to reduce reliance on US military support. Discussions around nuclear deterrence have also gained traction, with President Macron expressing interest in broader nuclear security collaboration. Within Europe, the UK’s status as the only nuclear power besides France may position domestic firms like BAE Systems and Rolls-Royce to gain significantly from these developments.

Elsewhere in the sector, Senior, which designs high-tech components for military applications, saw its shares rise by 8.5 per cent to 175.5p. Chemring, which specialises in military explosives and has been the subject of recent acquisition interest, closed up 7.4 per cent at 401p per share. Avon Technologies, a leading manufacturer of military helmets, ended 3.5 per cent higher at £14.82.

Significant gains were also observed on the continent. Germany’s largest defence provider, Rheinmetall, experienced a 13.7 per cent increase, bringing its valuation to €49 billion. Italy’s Leonardo, which develops military helicopters, saw shares jump by 16.1 per cent, reaching a valuation of €26 billion. French defence giant Thales recorded a similar rise of 16 per cent, increasing its market capitalisation to €45 billion. Airbus, which employs more than 10,000 people in the UK, also performed well, with shares gaining 5.2 per cent for a valuation of €138 billion.

Meanwhile, BAE Systems looks set to undertake measures to retain its chief executive Charles Woodburn, amidst speculation he could be poached by competitors. Woodburn, who has received £25 million in compensation over the past two years, is likely to see his bonuses significantly enhanced as part of retention efforts.

The rise in defence spending and boosted market valuations underscore a shift in European military priorities, driven by the war in Ukraine and calls for stronger domestic defence industries.