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European defense and aerospace stocks suffered a £12bn sell-off yesterday amid concerns their record run could be peaking.
Britain’s BAE Systems and Rolls-Royce were among those in the red after analysts questioned whether sharp rises in valuations could continue.
A gauge of European defense stocks, which includes companies listed in the United Kingdom, fell 3.9 percent, its biggest drop in more than a year.
The index has nearly doubled in value over the past two years after Russia’s invasion of Ukraine boosted prospects for increased military spending on the continent.
And the prospect of Donald Trump weakening America’s commitment to protecting Europe has further focused minds in European capitals.
Defeat: A gauge of European defense stocks, which includes UK-listed companies, fell 3.9%, its biggest drop in more than a year.
It means NATO members are under increasing pressure to meet long-neglected commitments to spend 2 percent of their GDP on defense.
This has boosted defense reserves across the continent and in the City. They now trade at a 45 percent premium to the broader European stock market, according to analysts at Goldman Sachs.
And it has helped companies, which for years have complained about being undervalued compared to Wall Street’s big gun makers, make up some of that difference. Goldman analysts said the sector was in a “supercycle.”
A separate report from Bernstein said that having traded at a more than 50 percent discount to its U.S. peers, the sector had “done something that would have been unimaginable 27 months ago: They have essentially closed the valuation gap.”
Among those who fell yesterday was Germany’s Rheinmetall, which suffered a 6.9 per cent drop, wiping £1.5bn off its value.
France’s Thales lost 4.9 per cent, also reducing its market capitalization by around £1.5bn.
In London, BAE Systems – maker of warships, fighter planes, submarines and missiles – fell 4.5 percent.
That reduced its valuation by £1.8bn. But it is still worth twice as much as before the Ukraine war.
Rolls-Royce fell 3.9 percent, or £1.4 billion, although that barely affected its dizzying rise under chief executive Tufan Erginbilgic, who has overseen a quadrupling of the share price since taking over at beginning of last year.
Other stocks trading lower in the UK were Babcock, down 2.5 per cent, Chemring, down 5 per cent, and Senior, down 2 per cent.
However, several analysts are still optimistic about the sector.
Nick Cunningham, managing partner at equity research firm Agency Partners, said: “The reality is that the European rearmament is just beginning, and these stocks still have a long way to go in terms of growth.”