Armin Papperger, Chairman of the Executive Board of Rheinmetall AG, stands at the annual press conference at Group headquarters.
Picture Alliance | Picture Alliance | Getty Images
European defense giants fell sharply on Monday, extending recent losses as investors grapple with a broad and severe stock market downturn.
U.S. President Donald Trump showed no signs of letting up on his aggressive trade policy after rolling out sweeping new tariffs last week, saying that “sometimes you have to take your medicine.”
U.S. stock markets fell sharply for a second consecutive day on Friday, with all three major indexes dropping by more than 5% as part of a global rout. U.S. stock futures were lower Monday morning, with the sell-off on track to persist.
European defense stocks, which have surged in recent months amid a regional push for strategic independence, were among the worst performers on Monday.
German arms manufacturer Rheinmetall traded 10.5% lower at around 10:38 a.m. London time (5:38 a.m. ET), paring some of its losses after falling as much as 27% shortly after the open. The company had briefly been on track for its worst day on record, according to Reuters.
Shares of German defense giant Thyssenkrupp fell 10.2%, Germany’s Renk Group traded 7.6% lower, while France’s Thales tumbled 7.1%. Swedish defense manufacturer Saab was last seen down 5.3%, while Italy’s Leonardo traded nearly 9% lower.
Stateside, shares of Lockheed Martin, Northrop Grumman and General Dynamics were all seen around 4% lower in pre-market trading.
Ben Heelan, head of EMEA aerospace and defense research at Bank of America, said the tariff impact on European defense stocks was likely to be “pretty small,” however. He added that current stock price levels represent a “great opportunity” for investors.
“What we’ve seen in Europe right now is that we’ve seen just this change in mindset, and that we now have visibility. We now have five to 10 years runway of growth as we move toward 3% of GDP,” Heelan told CNBC’s “Squawk Box Europe” on Monday.
“The next big datapoint is going to be Q1 results, where I think we will get a lot of commentary from companies about capabilities and capability reviews,” he added.
Saab logo is seen during defense industry exhibition in Kielce, Poland on September 3, 2024.
Nurphoto | Nurphoto | Getty Images
His comments come as defense spending looks set to soar in Europe following mounting pressure from Trump, who argues that allies are over-reliant on the U.S. for their own security.
In Germany, lawmakers have passed a historic debt reform, paving the way for a huge splurge on defense, while U.K. Prime Minister Keir Starmer has pledged to hike Britain’s national defense spending.
The European Union has also drawn up plans to mobilize up to 800 billion euros ($862.2 billion) to bolster regional security.
Asked for his reaction to Rheinmetall’s stock price plunge on Monday, Bank of America’s Heelan said: “What you’re seeing today is just the de-grossing impact of a sector that has been very, very loved from clients, particularly over the last three to six months.”
De-grossing refers to when hedge funds significantly reduce their overall exposure to a particular market or asset class.
A hedge against tariffs?
Trump on Wednesday announced far-reaching new levies as part of a “reciprocal tariff” policy, including a 10% tariff on almost every country and much steeper duties on many.
The White House has imposed a separate 25% duty on foreign auto imports, as well as a 25% tariff on all steel and aluminum products.
Loredana Muharremi, equity research at Morningstar, said Monday that even if Trump’s tariffs were extended to defense-related goods, the impact on European stocks under its coverage would likely be limited.
German Rheinmetall MAN tactical military transport vehicles are parked in the Edvard Peperko military barracks. Slovenian military received 40 of Rheinmetall trucks as part of a so-called chain-swap deal with Germany used to supply arms to Ukraine, in which Slovenia sent 28 M55s tanks to Ukraine and 38 Oshkosh vehicles after purchasing them from the USA.
Luka Dakskobler | Lightrocket | Getty Images
“While it’s still early to assess the full impact of the new tariffs on the defense sector, it’s worth noting that Europe remains a net importer of U.S. military defense equipment,” Muharremi told CNBC via email.
“Companies like BAE Systems, Rheinmetall, Thales, Saab, and Leonardo have already established — and in many cases expanded — their industrial footprint in the U.S., in anticipation of a potential Trump re-election. This local presence not only supports their access to U.S. defense contracts but also provides a hedge against tariffs,” Muharremi said.
— CNBC’s Chloe Taylor contributed to this report.
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