LIVE MARKETS-Defence sector starts 2026 on the front foot

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DEFENCE SECTOR STARTS 2026 ON THE FRONT FOOT

The weekend's news from Venezuela has highlighted that geopolitics is likely to continue playing a part in markets this year, even though the broad reaction has been relatively subdued.

One equity sector that did get a boost yesterday was defence .SXPARO, with the likes of Rheinmetall RHMG.DE, Saab SAABb.ST, Thales TCFP.PA and Leonardo LDOF.MI rising by at least 4.7%. The four companies gained between 66% and 154% last year.

With a ceasefire between Russia and Ukraine seemingly closer now than it has looked at any point in the last four years, some might believe it could be time to take profit on the sector.

But Bernstein remains upbeat.

"Regardless of the situation in Ukraine, we believe the outlook for military spending is unchanged: Europe
needs to rearm," Bernstein says.

"We believe the sector will tactically recover the correction, and shift to a second stage of the European cycle,
where performance is dictated by superior country and segment exposure."

The firm says Rheinmetall is its top pick within the sector as it benefits from German spending plans and relative proximity to Russia.

They also upgraded Thales to outperform and reiterated their outperform rating on Leonardo.

BAE Systems BAES.L and Dassault Aviation AM.PA both got downgraded to market-perform, but TKMS TKMS.DE has received an upgrade to market-perform as the post-IPO underperformance brought the stock back to what Bernstein considers a fairer valuation.

(Samuel Indyk)

EARLIER ON LIVE MARKETS:

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