Germany’s defence stocks go ballistic

Defence is now by far the most dynamic sector of German industry,” says Armin Papperger, chief executive of Rheinmetall, Germany’s biggest arms producer. Until recently no one, including Mr Papperger, the firm’s boss for the past 12 years, would have believed it. But as European countries prepare for a big boost to defence spending, Rheinmetall and its peers, including Hensoldt, a maker of electronic-warfare equipment such as radars, and Renk, which manufactures military vehicles, are scaling up production as quickly as they are able.

The geopolitical landscape is shifting dramatically, and its impact on the defense industry is undeniable. We're witnessing a significant surge in German defense stocks, reflecting investor confidence in a sector undergoing rapid expansion. This isn't isolated to Germany; across the EU, armsmakers are tooling up, increasing production capacity, and adapting to meet the rising demand for defense capabilities.

Several factors are driving this trend:

• Heightened Security Concerns: The ongoing conflict in Ukraine has fundamentally altered European security perceptions. Nations are prioritizing defense spending and bolstering their military readiness.
• Increased Government Investment: Governments across the EU, particularly in Germany, are committing substantial funds to modernize their armed forces and replenish depleted stockpiles.
• Shift in Strategic Priorities: A renewed focus on territorial defense and collective security is prompting a reevaluation of existing defense strategies and procurement plans.
• Increased demand for munitions: The need for munitions has increased dramatically, and the EU is trying to ramp up production.

This surge presents both opportunities and challenges. As the defense industry scales up, it's crucial to ensure responsible and sustainable growth, while maintaining a focus on innovation and technological advancement.