Refile: In a Trump win, 'buy-the-dip' opportunity seen in European defence

Vontobel Holding AG

04/11/2024 12:35

(Refiles to change portfolio manager's first name to Rob in
paragraph 9)
    By Danilo Masoni
       MILAN, Nov 4 (Reuters) - A Donald Trump victory in the
race for the White House is widely seen as bullish for European
defence stocks, given his warnings to scale back U.S. military
support in the region and force NATO members to spend 2% or more
of their GDP on defence.
    However, should he win and follow through on pledges to
bring about a rapid end of the war in Ukraine, there is the
possibility that the sector goes through heightened volatility. 
    JPMorgan has advised clients to hedge against short-term
declines going into the November 5 vote. 
       
    WHY IS IT IMPORTANT
    Analysts estimate a Ukraine ceasefire could trigger big
declines in defence stocks, but stock pickers look ready to jump
in to add exposure to this high-growth sector at a bargain.
    Shares in Germany's Rheinmetall  RHMG.DE , Sweden's Saab
 SAABb.ST , and Italy's Leonardo  LDOF.MI  have risen 230-360%
since Russia invaded its smaller neighbour in 2022.
    France's Thales and the UK's BAE Systems  BAES.L  are up 70
and 100%, respectively over the same period. 
   
    BY THE NUMBERS 
    The increased likelihood of Washington bringing peace to
Ukraine could trigger an initial share price drop in European
defence stocks of up to 20%, according to Citi estimates. The
U.S. bank views a Kamala Harris win as keeping the status quo.
    And there is also the potential for more inflows, which
could support any rally going forward. Morgan Stanley's investor
positioning data shows 72% of global funds have no exposure to
the European defence sector.
        
    KEY QUOTE
    "There will be a big drawdown the day that some sort of
(Ukraine) ceasefire is announced. But that day is going to be a
very good one to buy these companies," said Vontobel portfolio
manager Rob Hansen in New York, who is an investor in
Rheinmetall. "The defence sector is on a continued structural
growth path".

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Eu aerospace & defence stocks    https://tmsnrt.rs/3CoE6lK
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 (Reporting by Danilo Masoni; Editing by Amanda Cooper and
William Maclean)
 ((Danilo.Masoni@TR.com; Reuters Messaging:
danilo.masoni.thomsonreuters.com@reuters.net))