Concerns over a potential rift in the transatlantic alliance deepened following the collapse of the summit between U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskyy on Feb. 28, fueling a surge in defense stocks. Shares in the sector, which had been rallying since the onset of the Russia-Ukraine war, climbed further as European nations were expected to ramp up defense spending to bolster military capabilities. Major European defense firms hit record-high stock prices, while South Korean defense and shipbuilding companies, positioned to benefit from Europe’s military expansion, also posted significant gains.
When European markets opened on Mar. 3, following the breakdown of the Trump-Zelenskyy talks, investors flocked to defense stocks. Germany’s Rheinmetall, Europe’s largest integrated defense company, soared 13.71% in a single session, while German defense electronics firm Hensoldt surged 22.25%. The United Kingdom’s BAE Systems climbed 14.58%, and Italy’s Leonardo jumped 16.13%, reflecting a broad-based rally across the sector. Rheinmetall’s stock has gained 89.5% year to date.
The surge in defense stocks lifted broader European markets. Germany’s DAX index spiked 2.6% to a new all-time high, while France’s CAC 40 index approached its record set in May 2023.
Rheinmetall has emerged as Europe’s standout defense stock. In late February 2022, just before Russia’s full-scale invasion of Ukraine, its shares traded below 100 euros. Since then, the stock has soared past 400 euros in early 2024 and crossed the 1,000-euro threshold in late February. The company’s market capitalization has expanded elevenfold since the start of the war.
Benefiting from sustained demand, Rheinmetall reported a 40% year-over-year increase in third-quarter 2023 revenue, with operating profit rising 52%. Vincent Juvyns, a global market strategist at JPMorgan Asset Management, told Bloomberg that Europe has broadly aligned on strengthening self-reliant defense capabilities. He projected that even if peace is restored in Ukraine this year, European defense spending will continue to rise sharply for years to come.
South Korean defense stocks also rallied on Mar. 4, attracting heightened investor interest. Hanwha Aerospace, which supplies K9 self-propelled howitzers and Chunmoo multiple rocket launchers to Europe, surged 18.01% to a record-high close of 701,000 won. Hyundai Rotem, the manufacturer of K2 tanks, advanced 10.87%. Other key defense stocks, including LIG Nex1 (up 7.39%) and Daesung Hitech (up 29.97%), also saw strong gains, along with shipbuilders such as HJ Shipbuilding & Construction (up 30.0%) and Hanwha Ocean (up 14.54%).
Despite a broader downturn in the South Korean stock market—where the benchmark Korea Composite Stock Price Index (KOSPI) fell 0.15% and the secondary Kosdaq lost 0.81%—defense and shipbuilding stocks stood out. The market decline followed Washington’s confirmation that it would impose sweeping tariffs on imports from China, Canada, and Mexico starting Mar. 4.
According to the International Institute for Strategic Studies (IISS), a London-based think tank, global defense spending reached a record $2.46 trillion in 2023, marking a 7.4% increase from the previous year. Germany posted the sharpest rise, with its defense budget expanding 23.2%. Analysts predict that Nordic nations, which currently allocate about 2% of gross domestic product (GDP) to defense, may push that figure to 3% in the near term and potentially up to 5% in the long run.
