Global defence stocks jumped on Monday as the conflict between Israel and Iran entered its third day, drawing in the United States and raising investor expectations of increased military spending across regions.
Markets reacted swiftly after US and Israeli forces continued strikes on Iranian targets, while Israel also hit Hezbollah positions in Lebanon.
Iran, meanwhile, resumed missile attacks on Israel and reportedly targeted airports and strategic sites in neighbouring Gulf countries, adding to fears of a wider regional escalation.
European defence shares lead gains
European arms manufacturers extended an already strong rally, supported by expectations that governments will accelerate defence spending amid heightened geopolitical risks.
Shares in BAE Systems surged 7.9%, making it the biggest gainer in the sector.
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Sweden’s Saab and France’s Thales both climbed 6.1%.
Germany’s Hensoldt advanced 5.2%, while Norway’s Kongsberg and Italy’s Leonardo rose 4.7% each.
UK-based explosives manufacturer Chemring gained 4.5%.
Other major European names, including Rheinmetall, Dassault Aviation and Indra Sistemas, were up about 3.5%.
Lockheed Martin, RTX others jump in the US
US defence contractors also saw strong premarket moves.
Lockheed Martin, RTX and Northrop Grumman were all up more than 5% ahead of the opening bell.
“The U.S./Israeli strikes on Iran and Iran’s subsequent retaliation are likely to increase investor focus on missile-defence systems, as well as a likely increase in U.S. defence spending,” said Citi analyst Charles Armitage.
In Asia, Chinese defence-linked stocks followed the global rally.
Shares of Avic Shenyang Aircraft Company, known for producing the J-35 stealth fighter, closed nearly 5% higher, while Avic Chengdu Aircraft gained more than 4%.
Indian defence stocks pare early gains
In India, defence stocks opened sharply higher even as broader markets wobbled.
Hindustan Aeronautics, Bharat Dynamics, BEL and Paras Defence rose as much as 13.5% in early trade, buoyed by expectations of higher export orders and stronger sentiment.
By the close, however, much of the rally had faded.
Hindustan Aeronautics ended up just over 1%, Bharat Dynamics gained 0.4%, BEL rose more than 2%, and Paras Defence added over 3%.
Uncertainty clouds market outlook
The prospect of a prolonged conflict also lifted oil prices and energy shares, adding to inflation concerns.
“It’s very much one of uncertainty at the moment that investors are grappling with,” said Patrick O’Donnell, chief investment strategist at Omnis Investments, speaking to CNBC.
He warned that markets remain unsure about the duration of the conflict and its implications for growth and inflation.
The renewed violence follows US-Israeli air strikes last June that damaged three Iranian nuclear sites.
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