LIVE MARKETS-Europe's air defense boom still flying below investors' radar - Morgan Stanley

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EUROPE'S AIR DEFENSE BOOM STILL FLYING BELOW INVESTORS' RADAR - MORGAN STANLEY

Addressable demand for European air defense suppliers could reach $240 billion by 2035, if the European Commission targets are met, with much of that upside still flying under the market's radar, Morgan Stanley strategists said in a note.

"Despite the strong thematic backdrop and growing investor interest, sector performance has been more muted than expected in Europe and the US," Morgan Stanley said, pointing to a disconnect between investor interest and actual positioning that could leave room for further gains.

European aerospace and defense stocks have struggled in recent months with the sector index .SXPARO down about 13% since the U.S. and Israel launched strikes on Iran in late February.

Morgan Stanley said the expected growth could be driven by a shift towards domestic procurement supported by credible European technological alternatives but constrained by industrial capacity.

While Europe remains heavily reliant on U.S. suppliers, meeting the European Commission’s targets of 50% intra-EU procurement by 2030 and 60% by 2035 could see the addressable market for European suppliers increase sharply, the brokerage added in a note dated May 11.

(Kanchana Chakravarty)

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