Share Prices Of U.S And European Defence Firms Soar After Olaf Scholtz Commits $111 Billion To Bolster Germany's Military Capabilities

The share prices of defence companies in Europe and the United States surged on Monday (Feb 28) after Germany unveiled plans to boost its military spending by committing €100 billion ($111 billion) into a fund.

German Chancellor Olaf Scholz announced on Sunday (Feb 27) that defence spending in Europe's biggest economy will be increased to 2% of gross domestic product, from an estimated 1.53% in 2021.

Shares of Dusseldorf-headquartered Rheinmetall AG, which makes tanks and armoured vehicles for NATO surged 31% in Frankfurt.

German military sensor maker Hensoldt, a former unit of Airbus, also soared by more than 41.9%.

Thyssenkrupp, which is a leading player in the submarine market through its marine division, also posted an 8% gain in shares

The shares of BAE system, Britain's largest defence firm which has a joint venture with Rheinmetall, also rose by 14%.

Lockheed Martin, the manufacturer of the F-35 fighter jet, gained 5.4%. Germany is reportedly planning to purchase U.S. F-35 fighter to strengthen its depleting arsenal.

Raytheon and Northrop Grumman were up about 3.0% and 6.0%, respectively.

France's Thales added 12.1% and Italy's Leonardo surged 14.2%.

Defence stocks have come under pressure in recent years in the face of increased investor focus on ESG issues, though the crisis in Ukraine could lead to a rethink.

The rise of environmental, social and governance investing (ESG) has adversely impacted defence companies as banks and financial institutions have largely shunned these firms.

Germany's decision is a decisive departure from its long-held position of refraining from military spending.