TLDR
- BAE Systems shares jumped up to 19% to a record high following Ukraine summit hosted by UK PM Keir Starmer
- European defense stocks, including Rheinmetall (up 18%) and Leonardo (up 15%), surged after European leaders met with Ukraine’s President Zelensky
- UK announced a £1.6 billion deal for Ukraine to buy over 5,000 missiles to be manufactured by Thales Group in Belfast
- European defense spending expectations rising, with UK planning to increase from 2.3% to 2.5% of GDP by 2027
- Defense sector rally boosted the wider FTSE 100 Index to a new all-time high
BAE Systems, Europe’s largest defense manufacturer, saw its shares soar to an all-time high following a Ukraine summit hosted by UK Prime Minister Sir Keir Starmer. The stock jumped dramatically by 19% in early Monday trading before settling at a 14% gain by 10am GMT.
The surge places BAE shares at £16, representing an impressive gain of nearly 40% year-to-date. This remarkable performance comes amid broader strength across the defense sector.
The rally followed weekend talks at Lancaster House in London, where Starmer pledged to “develop a coalition of the willing” to defend a potential peace deal in Ukraine. The summit brought together 19 world leaders to discuss ongoing support for Ukraine.
Ukrainian President Volodymyr Zelensky attended the gathering after a contentious meeting with US President Donald Trump in Washington. The London summit appeared to demonstrate European solidarity with Ukraine following that confrontation.
A key announcement from the talks was a £1.6 billion finance deal enabling Ukraine to purchase more than 5,000 lightweight multirole missiles. These weapons will be manufactured by French defense giant Thales Group at its Belfast facility.
Starmer noted this manufacturing agreement will create approximately 200 new jobs in Belfast. The deal represents a tangible commitment to Ukraine’s defense capabilities amid ongoing conflict.
Other notable attendees at the summit included outgoing Canadian Prime Minister Justin Trudeau, European Commission President Ursula von der Leyen, and Spanish Prime Minister Pedro Sanchez. French President Emmanuel Macron was also present.
The defense sector rally extended well beyond BAE Systems. Engine maker Rolls-Royce followed with a 6% rise, while defense technology group QinetiQ jumped 9% in the FTSE 250 index.
Other significant gainers included Babcock International, up 7%, and Chemring, rising 4%. Among smaller companies, helmet and gas mask manufacturer Avon Technologies climbed 7%, while sonar and communications specialist Cohort surged 10%.
The positive sentiment wasn’t limited to British defense firms. German defense giant Rheinmetall saw its shares jump as much as 18% in Frankfurt trading on Monday, extending its year-to-date gains to 86%.
Rheinmetall, which manufactures armored fighting vehicles and personnel carriers, has established a growing presence in Ukraine. The company opened a joint production and repair facility in the country in June 2024.
Italian aerospace and defense group Leonardo also benefited from the sector-wide rally. Its shares rose as much as 15% in Milan trading, bringing its 2025 gains to 65% since January.
The UK has announced plans to increase defense spending
Analysts point to expectations of increased defense spending across Europe as a key driver behind these stock movements. The UK has announced plans to increase defense spending from 2.3% to 2.5% of GDP by 2027.
Bank of America analyst Ben Heelan suggested in an email that raising NATO’s defense spending target to 3% of GDP was “becoming the base case” ahead of the alliance’s summit in late June.
Germany’s probable next chancellor, Friedrich Merz, has indicated he will prioritize European security and maintain support for Ukraine. This stance may lead to further defense spending increases from Europe’s largest economy.
Deutsche Bank analysts noted growing speculation about special defense and infrastructure funds being established by the German parliament following recent elections. Such developments would likely benefit companies like Rheinmetall further.
The defense sector’s strong performance helped lift the wider FTSE 100 Index to a new all-time high of 8832.8 points, up 23 points during Monday trading.
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