LIVE MARKETS-Buy the dip, says Barclays on defence

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BUY THE DIP, SAYS BARCLAYS ON DEFENCE

Chasing the rally in defence at all costs might not be the best call, but buying the dips could be a smarter way to get exposure to a sector with strong growth ahead, Barclays strategists say.

The European defence and aerospace index .SXPARO has gained almost 30% this year, driven by expectations of a boom in defence budgets, as the region seeks military independence from the United States.

The UK bank says the sector does not seem overly expensive compared to others when considering its 3-year EPS CAGR, and it notes how the consensus does not yet reflect the recent spending announcements by Germany or the European Union.

"EU Defence's stellar return raises the risk of profit taking, potentially in case of Ukraine cease-fire," it writes in a note. "But we would buy on dip, as we think earnings supercycle is set to accelerate... Changing ESG approach could also make Defence more investable."

The increase in defence spending would most benefit Hensoldt HAGG.DE, which provides sensor systems for the Eurofighter, but also Rheinmetall RHMG.DE and Saab SAABb.ST.

While it says that the ins and outs of the spending are yet to be seen, the brokerage expects "much greater EU cohesion going forward."

(Paolo Laudani)

EARLIER ON LIVE MARKETS:

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