Defense stocks soar; The American strike against Venezuela heralds the era of “hard power”

Defense sector stocks in Europe and Asia jumped Monday as investors weighed how the dramatic ouster of Venezuelan leader Nicolas Maduro could herald a significant geopolitical shift that would boost the rearmament trade in the long term.

RheinmetallGermany’s largest arms maker, gained more than 9.3% at the London close, while the military technology and surveillance specialist Hensoldt increased by more than 8.2%. Italy Leonard added more than 6.3%, while its German counterpart Color added about 8%.

Swedish combat aircraft manufacturer Saab added more than 6%.

Previously, Japan IHI Corp. directed Gains in Asian defense stocksgrowing by around 9%, followed closely by Mitsubishi Heavy Industrieswhich increased by more than 8%. Kawasaki Heavy Industriesmeanwhile, was up almost 8%. In South Korea, Hanwa Aerospace closed up 7%, while shares of Poongsan gained more than 2%.

In the United States, the giant of combat aircraft Lockheed-Martin and manufacturer of military aircraft Northrop Grumman grew by more than 2% and 3% respectively. THE iShares US Aerospace & Defense ETF (ITA) rose more than 2%, hitting a new all-time intraday high.

Fawaz Chaudhry, chief investment officer at Fulcrum Asset Management, said Maduro’s toppling is a “signaling exercise” that will reshape geopolitics.

“When President Trump invoked the Monroe Doctrine, he’s talking about America’s near sphere taking control through hard power, through hard power assets,” Chaudhry told CNBC’s “Europe Early Edition” on Monday.

“We’re talking about a world that’s trying to move into a new era, where we’re basically going [have] powerful military means, and take control of them, which is fundamentally a different policy from before. »

Chaudhry expects this more assertive approach to US foreign policy will result in “more rearmament of Europe and more rearmament of Asia” in the long term, adding that defense stockpiles and military spending will continue to rise.

“What President Trump and what America just did in Venezuela is actually going to reinforce that. More military spending, more rearmament of Europe and Asia, so that trend is going to continue,” he explained.

The gains made by European defense names mark a clear turnaround for the sector, which has has been struggling in recent weeks with a view to a possible peace agreement between Ukraine and Russia.

Aoifinn Devitt, senior investment advisor at Moneta, expects defense spending to increase due to US exceptionalism and the theme of “gunboat diplomacy” displayed in recent days.

“We know that defense stocks did indeed falter when it looked like peace might be restored to Ukraine. But ironically, this theme, if anything, will be particularly emphasized. [by] this rhetoric that is spreading to neighboring countries,” Devitt told CNBC’s “Squawk Box Europe” on Monday.

More generally, defense benefits from several favorable structural factors, Devitt said, highlighting a acceleration of German military spendingwhich has been “endorsed without reservation” by the current German administration.

“New year, new world order – I think we all have to accept that. It will lead to precautionary defense spending,” Mr Devitt observed. “Do we think this is a productive use of funds, one that will allow us to generate jobs and generate long-term economic growth? Probably not. But that’s actually where we need to go.”

Stephen Dover, chief market strategist and director of the Franklin Templeton Institute, said other countries with territorial interests elsewhere could be emboldened by the Trump administration’s unilateral use of force.

The action also risks adding uncertainty about the dollar’s role as a safe haven, Dover said in a note, “while raising new questions about the deterioration of international institutional pillars.”

“The recent action by the US military is therefore likely to reinforce the well-started trend of countries around the world investing more in their national security. This has been one of our main investment themes since the Russian invasion of Ukraine.”

—Alex Harring of CNBC contributed to this report.