Defense stocks soar; U.S. strike on Venezuela heralds ‘hard power’ era
Defense stocks rose on Monday as investors bet that the dramatic ouster of Venezuelan leader Nicolas Maduro could herald a major geopolitical shift that will boost the rearmament trade in the long run.
RheinmetallGermany’s largest arms maker, Germany’s largest arms maker, gained more than 9.3 percent at the close in London, while military technology and surveillance specialist Hensoldt also gained more than 8.2 percent. of italy Leonardo It recorded an increase of over 6.3%, while its German counterpart Renk recorded an increase of around 8%.
Swedish fighter jet manufacturer saab More than 6% added.
Earlier, Japan’s IHI Corp followed closely behind as it led the gains for Asian defense stocks, rising nearly 9%. Mitsubishi Heavy IndustriesIt increased by more than 8%. Kawasaki Heavy IndustryMeanwhile, it increased by almost 8%. In South Korea, Hanwa Aerospace closed up 7%, while Poongsan’s shares gained more than 2%.
Meanwhile, the fighter jet giant in the USA LockheedMartin and military aircraft manufacturer Northrop Grumman progressed by over 2% and 4% respectively. iShares US Aerospace and Defense ETF (ITA) It rose around 2%, breaking a new all-time intraday record.
ITA, all-time chart
Fawaz Chaudhry, chief investment officer at Fulcrum Asset Management, said Maduro’s ouster was a “signalling exercise” that would reshape geopolitics.
“In invoking the Monroe Doctrine, President Trump is talking about seizing control of the near-sphere in America through hard power assets,” Chaudhry told CNBC’s “Europe Early Edition” on Monday.
“We are talking about a world trying to move into a new era; [have] have hard power military assets and go and take control, which is a fundamentally different policy than before.”
Chaudhry expects that this more assertive US foreign policy approach will mean “more arming of Europe, rearming of Asia” in the long run, while adding that defense stocks and military spending will continue to increase.
“What President Trump and America are doing in Venezuela will actually reinforce that. More military spending, more rearmament of Europe and Asia, so that trend will continue,” he explained.
New year, new world order
Gains by European defensive names point to a sharp turnaround for the sector. In recent weeks, it has been in a difficult situation due to the possibility of a possible peace agreement between Ukraine and Russia.
Aoifinn Devitt, Moneta’s senior investment advisor, expects defense spending to rise as a result of US exceptionalism and the “gunboat diplomacy” theme on display in recent days.
“We know that defense stocks wobble when it looks like there might be peace in Ukraine, but ironically this theme, if anything, will be particularly highlighted. [by] That rhetoric is spreading events to neighboring countries, Devitt told CNBC’s “Squawk Box Europe” on Monday.
Devitt said there are several key structural headwinds behind defense more generally, highlighting the increase in Germany’s military spending that has been “wholeheartedly approved” by the current German administration.
“New year, new world order; I think we all need to accept that. This will increase contingency spending on defense,” Devitt said. “Do we think this is an efficient use of funds where we’re going to actually create jobs and create long-term economic growth? Probably not. But that’s actually where we need to go.”
Other countries with regional interests elsewhere may be emboldened by the Trump administration’s unilateral use of force, said Stephen Dover, president and chief market strategist at the Franklin Templeton Institute.
The action would likely increase uncertainty about the dollar’s safe-haven role and “raise new questions about the deterioration of international institutional foundations,” Dover said in a note.
“Therefore, the latest action by the U.S. military will likely reinforce an already ongoing trend by various countries around the world to invest more in their national security. This has been one of our key investment themes since Russia’s invasion of Ukraine.”
— CNBC’s Alex Harring contributed to this report.
