Relaxation in the Middle East – but arms stocks are increasing. The market appears to be relying more on long-term demand than on short-term diplomatic signals.
• Peace signals do not slow down defense stocks
• Doubts about the implementation of geopolitical plans
• European rearmament drives long-term demand
The reports of a comprehensive 15-point plan by the US government to end the Iran conflict have initially brought some relief on the financial markets. The paper, which, among other things, calls for Iran’s permanent renunciation of nuclear weapons and far-reaching regional security guarantees, raises hopes for a diplomatic solution to the long-standing crisis. While oil prices fell at least temporarily in response to this news, defense stocks such as Rheinmetall, HENSOLDT, RENK and TKMS are remarkably resilient: In XETRA trading, Rheinmetall stocks gain 1.53 percent to 1,494.00 euros, HENSOLDT is up 2.78 percent to 73.90 euros, RENK also gains 2.62 percent to 52.44 euros and TKMS records a premium from 2.09 percent to 80.70 euros.
The reason for this apparent contradiction is the possible deep skepticism of market participants regarding its actual feasibility. Many analysts see the move as a maximum demand that has not yet been officially confirmed by Iran, which is why the geopolitical risk remains priced into the prices of defense companies. There are also contradictory reports from Iran that there should be no negotiations with the USA.
Europe as an independent growth driver
Another crucial factor for the recovery of German arms values is the decoupling from short-term trouble spots in the Middle East. The industry primarily benefits from a tectonic shift in European security policy that goes far beyond isolated diplomatic successes. As international support for Ukraine increasingly shifts into European hands, the need for domestically produced ammunition, tanks and state-of-the-art sensor technology is continually increasing. Companies like Rheinmetall continue to report new large orders that ensure high capacity utilization for years to come. This structural demand is considered to be largely immune to diplomatic fluctuations overseas, as the development of an independent defense capability is seen as a long-term, cross-generational project.
Against this background, defense stocks could remain popular investments – regardless of a possible easing of tensions in the Middle East.
Claudia Stephan, Bettina Schneider, Martina Köhler, editorial team finanzen.net
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