Investing.com — Europe's defense sector is positioned for growth in a potential second term for Donald Trump, according to Bernstein analysts.
Following the recent US elections, European defense stocks performed strongly, outperforming their US counterparts.
Bernstein attributes this trend to investor optimism about increased European defense spending amid heightened geopolitical tensions, coupled with sustained fiscal support in key European countries such as France, the United Kingdom and the Germany, despite budgetary difficulties.
Analysts stress that Trump's return could amplify the urgency for European countries to strengthen their defense capabilities, especially as Russia continues its aggression in Ukraine and tensions in the wider region escalate.
Developments include North Korea's military support for Russia and Ukraine's use of advanced Western weapons.
Such dynamics highlight the continued need for deterrence, which has prompted European countries to reconsider decades of underinvestment in defense.
France and the United Kingdom recently reaffirmed their defense budget commitments, signaling strong financial support for the sector.
Germany could also see an increase in its defense investments if the reforms proposed for its strict debt brake materialize after the next federal elections.
Company-specific developments further underline the sector's potential. Companies like Rheinmetall (ETR:) and Leonardo posted strong profits and ambitious growth targets, with Rheinmetall planning to double its turnover by 2027.
Despite uncertainties, such as the potential impact of a ceasefire in Ukraine, Bernstein says the long-term trajectory of the European defense sector remains positive.
Analysts suggest that even a negotiated settlement unfavorable to Ukraine could increase the need for European countries to take greater responsibility for regional security, given their dependence on U.S. support.
This scenario would likely lead to new investments in infrastructure and defense capabilities.
Although risks exist, including the imposition of tariffs and fluctuations in defense spending levels, the structural shift towards increased defense priorities in Europe portends bright prospects for the sector.
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