Shares in London-listed defence firms rose sharply on Wednesday as President Donald Trump altered his stance on the ongoing conflict between Russia and Ukraine. Early trading saw aerospace giant BAE Systems leading the rally with a gain of 1.6 percent, reaching £1,982.50 per share. Other notable increases included Babcock, which climbed over one percent to £1,195, and Rolls-Royce, which saw a rise of 0.8 percent to £1,170.50.
Despite the positive performance of defence stocks, the broader market struggled. The FTSE 100 index fell by 0.4 percent on Wednesday morning, with significant losses reported from companies such as Burberry, Barclays, and Standard Chartered.
The uptick in defence stocks follows Trump’s recent endorsement of Ukraine’s military capabilities. He stated that Ukraine “is in a position to fight and win all of Ukraine back in its original form.” When questioned about whether he supports NATO members shooting down Russian aircraft that violate their airspace, he responded, “Yes I do.”
Market Reactions to Trump’s Statements
Neil Wilson, a UK investor strategist at Saxo, noted that while the FTSE 100 hovered around the 9,200 mark, defence stocks emerged as key gainers. He explained, “Defence stocks were among the big gainers after Donald Trump agreed NATO countries should shoot down Russian aircraft that violate their airspace and backed Ukraine to reclaim all its territory lost to Russia.”
The positive sentiment extended beyond the UK, with European defence stocks also experiencing gains. Italy’s Leonardo rose nearly three percent, while Germany’s Rheinmetall saw a two percent increase.
The surge in London’s defence stocks follows a substantial year for the sector, particularly after Trump’s return to the White House in January 2023, which has prompted nations to increase their defence spending. The UK government has pledged to allocate five percent of its GDP to defence by 2035, influenced by Trump’s pressure on NATO members to boost their contributions.
Impressive Gains for Defence Companies
This year has proven to be exceptional for defence shares, with Babcock experiencing a remarkable increase of nearly 140 percent. Earlier in the year, the firm’s chief executive, David Lockwood, described the current climate as “a new era for defence.” He highlighted the growing recognition of the need to invest in defence capabilities and energy security, underscoring its importance for both public safety and economic development.
Babcock reported an impressive revenue increase of 11 percent, reaching £4.8 billion for the last financial year. The company plays a significant role in supporting the UK’s nuclear submarine program, further solidifying its position in the defence sector.
As global tensions continue to influence military strategies and spending, the defence industry is likely to remain a focal point for investors looking to capitalize on ongoing geopolitical developments. The recent changes in rhetoric from political leaders, particularly from the United States, will undoubtedly shape the market landscape in the months ahead.
