European defence stocks tick up on NATO spending pledge

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13 hours ago

(Reuters) -Shares in European defence firms edged up on Thursday after NATO leaders on Wednesday backed the increase in defence spending demanded by U.S. President Donald Trump.
As of 0814 GMT, German contractor Rheinmetall and Italy's Fincantieri, which on Thursday said it received an order worth 700 million euros ($820.89 million), were the top gainers, up between 3% and 6%.
A broader European defence index, which this year has rallied 49% on the back of a changed stance towards the sector in Europe, was up 1.3%.
Countries on Wednesday pledged to spend 3.5% of GDP on core defence and 1.5% on broader defence-related measures, a jump worth hundreds of billions of dollars a year from the current goal of 2% of GDP.
However, J.P. Morgan analysts say that the market is lukewarm to the targets, which are to be achieved over the next 10 years.
"The European defense companies we cover and the European defense investors we speak with do not believe that most European countries will be able to spend 3.5% of GDP on core defense in the next 5-10 years," they wrote in a note to clients.
Tom Guinchard, equity research analyst at Pareto Securities said the focus for defence companies would be Northern Europe, Germany and the Baltics, which are most likely to reach the targets.
"Already last week, we saw Spain get the exception," said Guinchard. "France will have difficulties leveraging up to 3.5% of GDP and most of the southern countries are going to be quite hesitant."
($1 = 0.8527 euros)