Arms industry shares soar as reality of Trump’s new world order sinks in
Shares in military arms suppliers have soared today as the cold hard reality of geopolitics hit home.
Last week’s news that UK prime minister Keir Starmer is to increase defence spending to 2.7% of GDP has been backed up by the weekend summit with European leaders was a clear signal of how serious the global situation is with the Trump White House turning its back on historic allies.
Shares in BAE Systems, which makes fighter aircraft in Lancashire and nuclear submarines in Barrow-in-Furness, closed at 1,600p, a gain of 200p over the course of the day.
Commenting, Russ Mould, investment director at AJ Bell, said: “Investors were remarkably calm given a whirlwind of geopolitical events over the past three days.
“Donald Trump accusing Volodymyr Zelenskyy of ‘gambling with World War Three’ could have easily triggered chaos on the markets, particularly as the meeting didn’t play out as expected. The fiery meeting involving the pair and JD Vance banished any hopes of a swift US-led resolution to the Russia/Ukraine war, although a European summit involving Zelenskyy was more encouraging.
“The European meeting saw leaders agree to boost defence spending and that had a direct read-across to defence stocks on the markets. BAE Systems’ shares jumped nearly 17% in early trading to a new record high as investors hoped increased government defence spending would improve its earnings outlook. Chemring jumped 5% and small cap defence player Cohort advanced 10%.
Last week Starmer said: “It is my first duty as Prime Minister to keep our country safe. In an ever more dangerous world, increasing the resilience of our country so we can protect the British people, resist future shocks and bolster British interests, is vital.”
In addition to his plan to reach 2.5%, the Prime Minister also announced that the definition of defence spending will be updated to recognise what our security and intelligence agencies do to boost our security, as well as our military. This change means that the UK will now spend 2.6% of GDP on defence in 2027.
“In my Plan for Change, I pledged to improve the lives of people in every corner of the UK, by growing the economy. By spending more on defence, we will deliver the stability that underpins economic growth, and will unlock prosperity through new jobs, skills and opportunity across the country.”
In her speech to the Convention of the North in Preston last Friday deputy prime minister Angela Rayner made reference to the jobs in Lancashire supported by the arms industry.
“Here in Preston, people have decent jobs to be proud of – just look at the Eurofighter Typhoon programme. We cannot underestimate the impact that business investment like that can have on an area. This is a sector that is critical for our national security, and economic growth.”
Last month TheBusinessDesk.com reported a rise in annual sales, profits and dividends at defence group BAE Systems, although it saw a fall in its order levels, all against a backdrop of heightened global tensions.
BAE reported revenues of £28.335bn in the year to December 31, 2024, compared with £25.284bn the previous year, a rise of 14%.
Pre-tax profits, on a statutory basis, were £2.332bn, up from £2.326bn the previous year.
CEO of global financial advisory giant deVere Group Nigel Green said the Stoxx Europe aerospace and defence index has skyrocketed, heading for its biggest one-day gain since 2020, as investors reposition for what is now an undeniable reality: defence spending is set to climb for years to come.
He said: “With European leaders scrambling to reinforce their military capabilities after the US distanced itself from security commitments, defence companies stand to be major beneficiaries.
“We believe that this is likely to be the beginning of a fundamental realignment that will shape markets for the foreseeable future.
“The shift is structural. Governments across Europe are coming to terms with the fact that their decades-long reliance on US military backing can no longer be taken for granted.”
