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    • A Trump victory creates a buy-the-dip opportunity for European defense
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    A Trump victory creates a buy-the-dip opportunity for European defense

    Kathleen William Posted on

    MILAN, Nov 4 (Reuters) – A victory for Donald Trump in the race for the White House is widely seen as bullish for European defense stocks, given his warnings about reducing U.S. military support in the region and forcing NATO members to spend $2 % or more to force a larger portion of their GDP to be spent on defense.
    However, if he wins and follows through on his commitments to quickly end the war in Ukraine, there is a possibility that the sector will see increased volatility.
    JPMorgan has advised clients to hedge against short-term declines ahead of the November 5 vote.

    WHY IS IT IMPORTANT

    Analysts expect a ceasefire in Ukraine could lead to sharp declines in defense stocks, but stock pickers appear ready to gain exposure to this high-growth sector at a bargain price.

    Shares of the German Rheinmetall (RHMG.DE)opens new tabSweden's Saab (SAABb.ST)opens new taband Italy's Leonardo (LDOF.MI)opens new tab have risen 230-360% since Russia invaded its smaller neighbors in 2022.
    France's Thales and Britain's BAE Systems (BAES.L)opens new tab have increased by 70 and 100% respectively over the same period.

    BY THE NUMBERS

    The increased likelihood of Washington bringing peace to Ukraine could trigger an initial decline in European defense stocks of up to 20%, according to Citi estimates. US Bank views a Kamala Harris victory as maintaining the status quo.

    And there is also the potential for further inflows that could support a future rally. Morgan Stanley investor positioning data shows that 72% of global funds have no exposure to the European defense sector.

    KEY QUOTE

    “The day some kind of (Ukrainian) ceasefire is announced, there will be a big decline. But this day will be a very good day to buy these companies,” said Vontobel portfolio manager Rob Hansen in New York investor at Rheinmetall. “The defense sector remains on a structural growth path.”

    (This story has been refiled to change the portfolio manager's first name to Rob, not Bob, in paragraph 9.)

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    Reporting by Danilo Masoni; Edited by Amanda Cooper and William Maclean

    Our standards: The Thomson Reuters Trust Principles.opens new tab

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    Kathleen William
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