Defense stocks soared on Monday as investors assessed how the dramatic overthrow of Venezuelan leader Nicolás Maduro could usher in significant geopolitical changes that would encourage rearmament trade in the long run.
line metalGermany’s largest arms manufacturer rose more than 9% by the closing bell in London, while military technology and surveillance specialist Hensoldt rose more than 8%. italian leonardo Germany’s Lenk grew by more than 6%, compared to about 8%.
Swedish fighter jet manufacturer serve Added more than 6%.
Earlier, Japan’s IHI led the rally in Asian defense stocks, rising about 9%, followed closely. Mitsubishi Heavy Industriesup more than 8%. Kawasaki Heavy IndustriesMeanwhile, it rose nearly 8%. In South Korea, Hanwa Aerospace shares closed 7% higher, while Pungsan shares rose more than 2%.
Meanwhile, in the United States, fighter jet giant lockheed martin and military aircraft manufacturers Northrop Grumman They advanced by more than 2% and 4%, respectively. of iShares U.S. Aerospace & Defense ETF (ITA) It rose about 2%, setting a new intraday record high.
ITA, all time chart
Fawaz Chaudhry, chief investment officer at Fulcrum Asset Management, said overthrowing Maduro was a “signaling exercise” to reshape geopolitics.
“When President Trump invoked the Monroe Doctrine, he was talking about controlling America’s proximate territory through hard power, through hard power assets,” Chaudhry said Monday on CNBC’s “Europe Early Edition.”
“What we’re talking about is a world that is moving into a new era, where you basically (have) hard power military assets and go out and take control. This is fundamentally a different policy than before.”
Chaudhry predicted that this more aggressive US foreign policy approach would mean “more rearmament of Europe, more rearmament of Asia” in the long run, adding that defense stocks and military spending would continue to rise.
“What President Trump and the United States have done in Venezuela will actually strengthen it. With increased military spending and increased rearmament in Europe and Asia, that trend will continue,” he explained.
New year, new world order
The rise of European defense companies marks a sharp reversal in a sector that has struggled in recent weeks amid the prospect of a possible peace deal between Ukraine and Russia.
Aoifhine Devitt, senior investment advisor at Moneta, expects defense spending to surge as a result of US exceptionalism and the theme of “gunboat diplomacy” in recent days.
“I know defense stocks were volatile at a time when it looked like there was going to be peace in Ukraine, but ironically, if anything, that theme is going to be particularly emphasized by this rhetoric that is spreading things to our neighbors,” David said on CNBC’s “Squawk Box Europe” on Monday.
More broadly, DeWitt said there were some important structural tailwinds for defense, highlighting the increase in Germany’s military spending, which the current German government has “full support” for.
“New year, new world order. I think we all have to accept that. That’s going to drive precautionary spending on defense,” David said. “Do we think that’s a productive use of money that actually creates jobs and creates long-term economic growth? Probably not. But that’s actually where we need to go.”
Stephen Dawber, chief market strategist and director of the Franklin Templeton Institute, said other countries with territorial interests in other countries could be emboldened by the Trump administration’s unilateral use of force.
Dover said in a note that the measure is likely to further increase uncertainty about the dollar’s role as a safe-haven asset and “raises further questions about the deterioration of international institutional pillars.”
“The recent actions of the U.S. military are therefore likely to increase the tendency of various countries around the world to invest more in national security, which has been one of our key investment themes since the Russian invasion of Ukraine.”
— CNBC’s Alex Harring contributed to this report.
