DEFENCE stocks have surged amid growing trader confidence sparked by Donald Trump and Volodymyr Zelenskyy’s fiery White House crash, analysts have said.
Weapons companies are “riding a wave of investor enthusiasm” caused by America’s insistence that European countries spend more on defence amid signs the US was prepared to abandon Ukraine.
Trump’s demands have sparked commitments from its European allies, including the UK, that more money will be spent on weapons.
Experts at Sad Rabbit Investments said the extraordinary clash between Trump and Zelenskyy in Washington DC on Friday had “catalysed” a surge in defence company stocks.
In a briefing note, the company said: “This surge in defense stocks has been even more dramatic than initially anticipated, with major players like Rheinmetall, Thales, and BAE Systems seeing gains of 15-18%, with the rally catalysed by the clash between President Trump and President Zelenskyy late last week.
“Despite military budgets expanding and Nato members preparing for a prolonged security crisis, share prices in the defence sector are already climbing and valuations have become stretched.
“The sector has outperformed broader indices, with share prices reflecting expectations of sustained military investment, so prospective investors should question whether the bulk of the gains have already been realised.”
In a newsletter for investors, the company warned that “while war and conflict can fuel short-term gains, peace agreements, shifting government priorities, and economic downturns have historically led to sudden reversals in the sector”.
It also raised the possibility that a sudden spike in defence spending may be short lived, noting existing pressures on government borrowing including “expensive energy subsidies and pandemic-related stimulus”.
The company said: “So while countries like Germany, France, and Poland have announced record defence budgets, their ability to sustain this spending amid broader economic pressures remains uncertain.”
It added: “The resurgence in European defence spending comes amid growing global economic uncertainty, with inflationary pressures, higher interest rates, and fiscal constraints forcing governments to make difficult budgetary choices.
“So while defence remains politically untouchable in many Nato countries currently, other economic priorities, such as energy security and technological innovation, could begin to take centre stage in the near future.
“Furthermore, any unexpected de-escalation of the Ukraine conflict, political resistance to rising defence budgets, or regulatory scrutiny over arms exports could slow the rally, and investors should be wary of the historical boom-and-bust cycle of defence stocks.”
It comes after a meeting of European leaders convened by Keir Starmer (above) in London following the bust-up between the American and Ukrainian presidents.
Members of the so-called “coalition of the willing”, who met in Lancaster House on Sunday, have agreed to Starmer’s plans to put peacekeeping forces in Ukraine in the event the war is ended.
Zelenskyy has indicated he is prepared to sign a deal with the US which entitles America the right to exploit the country’s mineral and energy reserves.
It is thought American involvement in Ukrainian industry would deter Russia from invading again.
Starmer has announced a loan to Ukraine worth £1.6 billion to buy more than 5000 missiles, which will be manufactured at the Thales factory in Belfast.
