UK and European defence shares surged to near-record highs on Monday following the defence summit hosted by Prime Minister Sir Keir Starmer. Key players such as Rolls-Royce and BAE Systems saw dramatic increases, underscoring the event's impact.
The STOXX 600 gained 0.4 percent, marking its tenth consecutive week of increases, and the European aerospace and defence index jumped six percent, reaching record highs. Early morning trading witnessed Rolls-Royce Holdings' shares climb five percent, buoyed by last week’s announcement of reinstated dividends and the initiation of a £1 billion share buyback program. Angela Strank, a Rolls-Royce non-executive director, highlighted her substantial 500 percent return on investment after purchasing shares in February 2023, as the company's valuation rose to over £60 billion from lows just under £3 billion.
Meanwhile, BAE Systems' stock leaped as much as 17 percent early on, with shares of the German defence giant Rheinmetall rising by 17.4 percent and Italian firm Leonardo increasing by 15.1 percent. This surge followed Sir Keir Starmer’s call for forming a European “coalition of the willing,” which unveiled plans for a £1.6 billion missile deal aiming to bolster Ukraine’s air defense capabilities at the summit.
During interviews, Starmer told the BBC’s Laura Kuenssberg about his “driving purpose” over the past week to unite Europe around Ukraine and establish stable security guarantees. He stated, "My driving purpose over this frantic week of diplomacy has been to reunite Ukraine and to negotiate a European element to security guarantees." The missile deal entails more than 5,000 air defence missiles to be manufactured by French firm Thales Group at their Belfast facility.
French President Emmanuel Macron, addressing the summit, urged European leaders to increase defence spending to over three percent of GDP, emphasizing, "For the past three years, the Russians have been spending 10 percent of their GDP on defence. We need to prepare what come next, with an objective of 3 to 3.5 percent of GDP." This aligns with Starmer's announcement earlier this year, which indicated plans to raise UK defence spending from 2.3 percent to 2.5 percent by 2027.
The FTSE 100 index reflected this optimism. It rallied to all-time highs, climbing 0.4 percent or 32 points at the market's opening. BAE Systems played a hefty role, with its stock experiencing unprecedented rises. The company observed shares hit 19 percent at one point during trading, contributing to the FTSE 100’s rise to new heights, which touched 8832.8 points.
By 10 am GMT, BAE shares underwent slight adjustments but remained strong with increases of 14 percent at £16 per share. The year-to-date figures showed BAE shares up almost 40 percent, emphasizing the stock's performance. Rolls-Royce also contributed positively to the FTSE 100 with its six percent rise amid the overall industry rally.
The summit also gathered significant international figures, including Ukrainian President Volodymyr Zelensky, who flew from the gathering to Sandringham for talks with the King. Fellow leaders, such as Canada’s outgoing Prime Minister Justin Trudeau, European Commission President Ursula von der Leyen, and Spain's Prime Minister Pedro Sanchez were likewise present, making it clear this discussion was not solely UK-centric but captured broader discussions on European security strategies.
On the trading front, the enthusiasm continued with QinetiQ, another defence technology group, increasing by nine percent on the FTSE 250 index, alongside Babcock International’s rise by seven percent and Chemring’s gains by four percent. Small cap stocks also benefitted, with Avon Technologies rising by seven percent and Cohort gaining ten percent.
This market performance follows the pressure from President Trump, who has been vocal about changes relating to tariffs and trade relations. Nevertheless, the UK market has retained focus on its defensive qualities, driving investor interest. Richard Hunter, head of markets at Interactive Investor, noted: "With neither exposure to mega-cap tech risks nor tariff threats, the UK has ploughed ahead, with the premier index increasingly garnering investor attention."
Analysts have pointed out the clearing path for defence investments, with growing commitments across Europe creating what seems to be sudden liquidity for military contracts and manufacturing agreements. Neil Wilson from Tip Ranks remarked on the burgeoning situation, stating: "London’s FTSE 100 closed at record highs and has extended higher early on Monday, now up seven percent year-to-date. There is suddenly a lot of extra cash for defence."
The post-summit perception and momentum surrounding the UK’s defence stocks reveal not only economic buoyancy but also signal the potential for substantial long-term investments aimed at reinforcing military capabilities and regional security commitments across Europe. With political support aligning on these fronts, stakeholders remain watchful for the next steps as policies shape the future of defence economics.