'New world order': JPMorgan advised to buy EU defense stocks on the downturn

Shares of defense companies in Europe fell in price at trading on January 22 - after the statements of U.S. President Donald Trump about unwillingness to use force to seize Greenland. Analysts at JPMorgan Chase & Co. saw the current decline in quotes as an opportunity to invest in the sector, Bloomberg writes.

"We continue to recommend investors buy European defense stocks on any decline in their value <...> We are in the very early stages of a global rise in defense spending that could last another decade," noted JPMorgan analyst David Perry (quoted by Bloomberg). "We have entered a new world order," he added.

In addition to the Greenland situation, Bloomberg notes, the conflict in Ukraine remains at the center of investors' attention. On January 22, representatives of the U.S. administration were scheduled to meet with Russian President Vladimir Putin for talks on Ukraine. But, according to Perry, the war in the region will continue "until one or both sides are exhausted."

After a large-scale growth in the first half of 2025, shares of defense companies in Europe have become more sensitive to geopolitical news, Bloomberg writes. For example, a basket of securities, formed by Goldman Sachs, fell in price by 4.2% in trading on January 22 - after U.S. President Donald Trump said at the World Economic Forum in Davos that he does not intend to use force to establish control over Greenland belonging to Denmark, Bloomberg writes.

One of the largest producers of military equipment and armaments in Germany, Rheinmetall AG, lost 5% of its value at the moment on Thursday, but by the end of trading it regained some of its losses and ended the day down by 3.4%. Shares of Swedish aircraft manufacturer SAAB, French military software manufacturer Thales and Italian helicopter manufacturer Leonardo lost about 3-4% on January 22; British aircraft engine manufacturer Rolls-Royce fell about 1%.

Nevertheless, since the beginning of the year, Rheinmetal AG's securities have added 14.7%, SAAB is up 28%, Rolls-Royce is up 8% and Leonardo is up 15.7%.

In addition to geopolitical developments, European defense stocks could also be impacted by decisions on the U.S. defense budget, according to Morningstar equity analyst Loredana Muharremi. Earlier this year, U.S. President Donald Trump proposed increasing the U.S. defense budget for 2027 by 50%, from $1 trillion to $1.5 trillion.

"Such events form a multi-scenario framework for investment in the sector and reinforce the concept of a 'defense supercycle,'" she observed. "If the U.S. defense budget is increased, it will signal continued high geopolitical risk. The main beneficiaries [of such a decision] will be U.S. defense companies, but European companies with a direct presence in the U.S. market and production capacity are also expected to benefit," Muharremi argued.

However, much will depend on whether the U.S. decides to increase military spending, the analyst added. The last time the U.S. defense budget was increased by 50% was during the Korean War in 1951, Capital Alpha Partners analyst Byron Callan pointed out in early January. "It is unclear to us whether defense contractors will be able to cover the magnitude of this increase, even if it is spread over fiscal years 2027-2030," he said.

This article was AI-translated and verified by a human editor