The rearmament of Europe is a reality and the markets are already strongly betting on an unprecedented ‘boom’ in the military industry of the old continent after the uncertainty that Russia’s military invasion of Ukraine has unleashed. The latest step in the military escalation of the countries of the Union was yesterday’s announcement of the creation of a rapid deployment force of more than 5,000 troops and a community investment of more than 200,000 million euros. Various experts have understood this step as the first step in a long-term process for the consolidation of a European army. This is an unprecedented step that puts yet another argument on the table for investors to be optimistic about an arms sector.
British company, BAE Systems is good evidence of this sentiment in the markets. This firm is neither more nor less than the second largest military contractor in the world and its products include battle tanks, armored vehicles, submarines, anti-aircraft destroyers and the most recognized fighter models are the Eurofighter Typhoon or the F35 (which is also produces Airbus). So far this year Bae Systems has seen the price of its shares grow more than 32% on the stock market and since the day of the invasion, the increase has been more than 22.2%.
Dassault, the French maker of military (and civil) aircraft, has also been caught in a bullish spiral, soaring 40% in the year and 20.02% since the fighting began. Another key company in Gallic war production is Thales, that manufactures electronic products linked to information systems and services for aerospace, security and defense systems. In the computation of the year, it has already advanced more than 53% and 38% since the beginning of the invasion.
German arms companies soar more than 100% on the stock market this year
Leonardo is another company that follows this trend. The Italian firm specializing in aerospace technology has specialized in aeronautics (with special attention to helicopters), electronics and defense systems soars by 45% in 2022. Proof of the boom in its business is that five European countries, (France , Germany, United Kingdom, Italy and Greece) have announced this week a joint project for this company to produce, together with Aurbus, a new line of next-generation helicopters.
Although one of the most striking cases is the German spin-off of Airbus in which KKR has a stake, Hensoldt. The Germanic country is one of the countries that is putting the most effort into its rearmament and one of the proofs of this is that this local firm has entered a frantic escalation of more than 116% so far in 2022 and 127% since start of the invasion. The other German firm, Rheinmetallspecialized in all kinds of weapons, but outstanding in its battle tanks and artillery cannons, has advanced at similar rates, 112% in the year and 88% since the first battles.
Europe, armed to the teeth
This is the consequence of a military escalation that is already reaching the expense of the main countries of the European Union. The first to sound the alarm was Germany, a few days after the Russian army crossed the border. The response from Olaf Scholz, the country’s chancellor, was forceful, announcing an investment of 100,000 million euros to upgrade your army. This is the first such sensitive ‘rearmament’ of Germany since the Second World War and represents an increase in annual investment in defense of more than 2% of GDP.
In the rest of Europe this trend has been implanted, especially in the east and north, where the conflict is closer. Poland has approved increasing defense spending to 3% for next year. Denmark, Sweden, Romania, Latvia and Lithuania have approved paths increases in military spending. To the west of the Old Continent, the decisions are not so imminent, but they go in the same direction. Macron and Draghi have also announced increases in France and Italy, although they have not given more details about it at the moment.
Europe has agreed to an investment of 200,000 million and a ‘proto-European army’ of 5,000 troops
Spain has promised to exceed 2% of GDP spending dedicated to its armed forces, but has not set a date to achieve this milestone. Which if Pedro Sánchez has specified it is to increase, at least 20% of its spending on these items in the coming years. Despite this milestone, the items for the Armed Forces have been clearly growing since 2016 and have gone from 5,700 million euros to the current 9,700 million.
At a European level, a recent report prepared by the Stockholm International Peace Research Institute (SIPRI) has concluded that Europe was the region where increased arms imports from all over the world. In the last 20 years, the remittances that came to the old continent have shot up 20% and the authors conclude that with the movements in Ukraine, the Old Continent is now a “hot spot”.
Although the firmest step was given this week, when a new plan for the next ten years called the ‘Strategic Compass’ was launched in Brussels. This plan has been strongly marked by the invasion, as recognized by the high-ranking leaders of the European Union, and includes an investment of more than 200,000 million and a combined force of 5,000 troops. A step that many define as historic and that opens the door to a new era for the European military industry.
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