London-listed defence stocks plunged across the board on Tuesday, after this week’s talks between Washington and Ukraine led traders to pare back bets on the role that European countries will play in any post-ceasefire peacekeeping efforts.
Shares in FTSE-100 engineering group Babcock – one of the best performing companies on the London Stock Exchange this year – had fallen by as much as 7.5 per cent by mid-afternoon, while BAE Systems’ stock plummeted over four per cent.
Losses at Rolls-Royce, whose more diverse portfolio include making plane engines and small modular reactors as on top of defence, were trading 2.8 per cent down at 14:50 BST, before making back some losses later in the day’s session.
The sharp movements in UK-headquartered defence firms follow Donald Trump confirming America would be “involved” in a so-called peacekeeping mission, to help ensure Russia and Ukraine uphold any peace deal that is signed.
The comments, made in a press conference after the US President had met with his Ukrainian counterpart Vlodymyr Zelensky in the White House on Monday, are the clearest sign from Trump that Europe may be able to rely on US support in preventing further escalation.
The sell-off also came after it emerged Ukraine had promised to buy $100bn (£740m) of weapons from the United States – financed by Europe – as part of the country’s attempts to to net security guarantees from Trump administration.
“Far from the adversarial, uncomfortable scenes recorded in the White House earlier this year, the by-play between the US President and the Ukraine leader was positive, even friendly,” said Danni Hewson, head of financial analysis at AJ Bell.
“There seems to have been a shift and if the fighting ends, the requirement for additional armaments ends with it, although any peacekeeping forces will need kitting out appropriately.”
Downward market pressure was even more evident in the continent, where European defence giants endured a falls of as much as 10 per cent. Italy’s Leonardo lost 10 per cent of its valuation within just a few hours of market open.
Shares in Germany’s Hensoldt and Rheinmetall – the latter of which is one of the best performing public companies in the world this year – fell 8.4 per cent 5.4 per cent respectively.
The continent-wide sell-off brings an end to what has been a blistering run for defence firms across Europe this year. Shares in arms and aerospace companies have skyrocketed, as Nato members race to rearm in the face of growing pressure from the Trump administration and the integral role the alliance will play maintaining peace in Europe.
In February, UK Prime Minister Keir Starmer cut the international aid budget to increase UK defence spending to 2.5 per cent.
Meanwhile Germany’s new Chancellor – Olaf Scholz – was voted into office promising to end his country’s longstanding ‘debt brake‘ to boost its defence and infrastructure budgets.