LIVE MARKETS-European defence sector: more gains on the horizon?

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EUROPEAN DEFENCE SECTOR: MORE GAINS ON THE HORIZON?

Europe's defence sector is in the midst of an unprecedented shift and with increased military spending across the continent, investors are eyeing defence stocks as a key growth area.

On Monday, the STOXX Europe Total Market Aerospace & Defence index .SXPARO saw its biggest jump since November 2020, rising over 7.5%.

The defence stocks are buoyed by expectations of ramped-up military spending following a high-stakes weekend summit of EU leaders.

Over the past three years, there has been a significant re-rating in the defence sector and increase in spending, but the question is whether there is more upside from here, analysts at BofA Global Research say.

BofA estimates that stocks price in European defence spending of around 2-2.5% of GDP. However, if that increases to 3% of GDP, it would ensure "clear and sustained" growth for the defence sector well into the early 2030s, offering "significant visibility and growth".

In a separate note, Citigroup analysts said that achieving a "just and lasting peace" in Ukraine requires immediate European military aid to strengthen Ukraine's negotiating position and long-term significant investment in European defence to deter future Russian aggression.

They expect the weekend's events to further boost sentiment in the sector as markets assess the spending intentions.

(Joel Jose)

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