EU's defense index, company shares decline in past 5 days after enjoying significant gains with rising defense budget in bloc, just before Russia-Ukraine peace negotiations set to begin in Türkiye
Shares of European defense firms fell in the days leading up to renewed peace talks between Russia and Ukraine set to take place in Türkiye.
On May 11, Russian President Vladimir Putin proposed resuming direct negotiations without preconditions in Türkiye after a three-year pause, requesting Turkish President Recep Tayyip Erdogan host the peace talks.
In response, President Erdogan confirmed Türkiye's readiness to facilitate negotiations for a fair and lasting peace between Ukraine and Russia.
Investors say a durable peace deal between Russia and Ukraine could lead to reduced military spending by European governments.
Companies in the EU's defense index have already seen a five-day decline in shares prior to the restart of Russia-Ukraine peace negotiations in Türkiye.
The STOXX Europe Aerospace and Defense index declined about 2% in the last five days.
Shares of German arms manufacturer Rheinmetall fell roughly 9% to €1,592 ($1,784), down from a peak of $1,954 on May 9. The five-day drop was 3.25%.
Whereas, the ongoing war in Ukraine had prompted European countries to increase their defense spending.
Rheinmetall, which produces Leopard 2 tanks and is Europe's largest ammunition producer, saw its stock surge more than 1,400% since the start of the war in Ukraine. Its market value surpassed $78.4 billion -- greater than that of the region's largest carmaker Volkswagen.
Other defense firms are also seeing declines. Over the last five days, shares of Sweden's Saab dropped 6.15%, France's Thales 5%, Italy's Leonardo SpA 5%, Germany's Hensoldt 4%, and the UK's BAE Systems about 2%.
In contrast, France's Safran and the UK's Rolls-Royce each gained about 1%, while Airbus shares remained mostly flat.
US and Asian defense firms' shares also declined. Most notably, Lockheed Martin, the US-based maker of the F-35 fighter jet, lost 2.51%.
- Rising defense budget with Trump in office amid Russia-Ukraine war
European leaders had decided to increase defense spending to respond to growing security threats with the start of the Russia-Ukraine war in February 2022. The increase in defense budgets significantly contributed to the rising shares of defense and aviation firms.
After US President Donald Trump took office in January this year, Europe reassessed its defense and security policies.
Some divisions came to the fore with Trump's arrival in office, while US-Ukraine relations became fragile.
Excluded from the Ukraine peace talks, European leaders initiated a strategic defense framework for the bloc. European defense stocks rose as Trump urged NATO allies to boost military investments.
Ongoing inventory shortfalls and diplomatic tensions continue to be a driving force for European countries to increase defense spending.
