European defence shares surged on Monday, driven by geopolitical tensions and strategic realignments that have shifted investor focus towards potential new flashpoints. The rise in defence stocks follows the US administration’s intervention in Venezuela over the weekend, which has cleared the way for other geopolitical priorities to take centre stage.
Analysts at Jefferies noted that the removal of Venezuelan President Nicolas Maduro from power has effectively removed a significant item from the US administration’s foreign policy agenda. This shift has turned the spotlight towards Greenland and Ukraine, two regions that are now at the forefront of geopolitical discussions.
US President Donald Trump’s recent remarks in an interview with The Atlantic have added fuel to the fire. Trump stated, “we do need Greenland, absolutely … we need it for our defence.” This statement has sparked a diplomatic row, with Danish Prime Minister Mette Frederiksen calling on the US to halt any threats to take over Greenland.
The potential deployment of European Union troops to Greenland, an idea proposed by France last year and previously declined by Denmark, may once again be on the table. Jefferies analysts suggest that the geopolitical landscape is evolving rapidly, with significant implications for European security.
“The prospect of NATO’s most powerful member looking to acquire the territory of a smaller ally introduces a new and uncomfortable source of instability into the European security order,” said Tom Bailey, Head of Research at HanETF.
The rise in defence shares comes as a reversal from the end of last year, when concerns about peace deals between Russia and Ukraine led investors to question the sustainability of increased defence spending pledges by European governments. However, against the current backdrop, these commitments appear more structural than cyclical.
In the UK, shares in BAE Systems and Babcock International rose by 4%, while Chemring and Qinetiq shares were both up 3%. On the continent, shares in Rheinmetall and Saab surged by 7%, and Leonardo shares were up 6%.
This surge in defence stocks underscores the growing recognition among investors that geopolitical tensions are likely to drive sustained defence spending. As the global security landscape continues to evolve, the defence sector is poised to play a crucial role in shaping both national and international strategies.