European defence rally falters on Ukraine ceasefire talks

{"text":[[{"start":null,"text":"

"}],[{"start":9.9,"text":"European defence stocks fell on Tuesday as progress towards a ceasefire in Ukraine led investors to question whether the sector’s blistering rally could be over."}],[{"start":22.700000000000003,"text":"Shares in Italian defence company Leonardo and Germany’s Hensoldt both slumped 9.5 per cent, while shares in Rheinmetall, also of Germany, fell 4.9 per cent."}],[{"start":38.53,"text":"US President Donald Trump on Monday said the US would be “involved” in helping Ukraine defend itself if peace could be agreed with Russia, and pledged to arrange a meeting between leaders Volodymyr Zelenskyy and Vladimir Putin."}],[{"start":54.78,"text":"The Financial Times on Monday reported Ukraine would promise to buy $100bn of weapons from the US, financed by Europe, in an attempt to obtain US security guarantees."}],[{"start":71.71000000000001,"text":"“Any de-escalation of tensions between Russia and Europe, and talk of spending more on US equipment, is negative for these companies,” said Craig Cameron, head of European equities at Franklin Templeton. High valuations meant “there is a need to deliver”, he added."}],[{"start":90.44000000000001,"text":"European defence stocks soared in the first half of this year, boosted by the unveiling of Germany’s “whatever it takes” spending package in March. Berlin said it would loosen its strict debt brake to unlock a new era of defence and infrastructure spending, prompted in part by signs that Washington would step back from its involvement in European security."}],[{"start":null,"text":""}],[{"start":114.97000000000001,"text":"Even after Tuesday’s moves, Rheinmetall’s share price has risen more than 155 per cent this year, while Saab is up more than 110 per cent. French defence company Thales has risen 65 per cent."}],[{"start":131.82000000000002,"text":"Caroline Shaw, a portfolio manager at Fidelity International, said she had “trimmed” her position in European defence stocks in early August because “the environment for defence had evolved and the valuations looked a bit more stretched”."}],[{"start":150.65000000000003,"text":"US dollar debt restructured by Ukraine last year also rallied on Tuesday on bets that a peace agreement would raise the chances of repayment."}],[{"start":163.45000000000005,"text":"One key bond due in 2035 rose from 58 to just under 60 cents on the dollar, leaving it up nearly 25 per cent this month at its highest level since March. The debt will deliver extra payments if Ukraine’s GDP beats targets for 2028, which investors say is likely only if the war ends in the coming months."}],[{"start":190.28000000000003,"text":"The grinding conflict in Ukraine had not been the only driver of the European defence stocks rally, so a ceasefire would not change the outlook entirely, Franklin Templeton’s Cameron added."}],[{"start":204.31000000000003,"text":"“These companies are not going back to where they were in January or February,” he said. “The longer-term story of Europe needing to spend more on defence holds true — I don’t think we’re going back to the old world, even if there was a ceasefire.”"}],[{"start":221.39000000000004,"text":"In June, Nato’s 32 members agreed to raise defence spending to the equivalent of 5 per cent of GDP following US pressure."}],[{"start":232.44000000000005,"text":"Giles Parkinson, head of equities at asset manager TrinityBridge, said: “The market concern is that an end to the hot war in Europe would weaken the resolve of Nato members to achieve the increased spending commitments.”"}],[{"start":248.98000000000005,"text":"He said the longer-term prospects for European defence stocks would depend on whether Moscow emerged stronger or weaker from the current round of talks, as any expansion of Russian territory could prompt an increase in defence spending in the region."}],[{"start":268.21000000000004,"text":"“[European defence] is still a high-scoring theme for us but no longer the top theme,” said Gerry Fowler, head of European equity strategy at UBS. He said the theme had become “expensive and crowded” as global investors piled into the stocks this year."}],[{"start":288.61,"text":"As a result, “you have to constantly see reasons for more buying, which usually comes in the form of constant consensus earnings upgrades”, he said. “Those have stopped now.”"}],[{"start":301.75,"text":"Magesh Kumar Chandrasekaran, European equities strategist at Barclays, said that while the possibility of a ceasefire may lead investors to take profits on defence stocks in the short term, the outlook for the sector remained promising."}],[{"start":318.49,"text":"“We remain bullish,” he said. “Across the world, the need for additional defence spending is going to happen. None of this will stop the rearmament of Europe.”"}],[{"start":331.68,"text":"Additional reporting by Joseph Cotterill in London"}],[{"start":345.08000000000004,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1755646581_1824.mp3"}