Global defense stocks rose early Monday as investors reacted to a dramatic military escalation in the Middle East over the weekend.
The sector was a rare bright spot amid a widespread market sell-off sparked by fears of a broader regional conflict.
Hensoldt of Germany and Great Britain BAE Systems were among the top performers on the Stoxx 600, both up more than 5%. Defense names Such, Renkand leonardo increased by between 3.1% and 4.5%, while the broader sector Stoxx 600 Index fell 1.4%, hitting a two-week low.
In the United States, American companies Lockheed Martin and Northrop Grumman rose 7.7% and 5.2% in pre-market trading. Futures that follow S&P 500 they fell 1%.
With South Korean markets closed on Monday, regional activity in the Asia-Pacific defense sector was somewhat muted. Japanese defense heavyweights Mitsubishi Heavy Industries and IHI rose about 3% each, while Singapore’s ST Engineering rose 2.8%.
The measures come after the United States and Israel launched widespread strikes against Iran over the weekend that killed Iran’s supreme leader, Ayatollah Ali Khamenei, ending his 36-year rule. Iran’s retaliatory attacks on US bases in the Middle East killed three US service members.
The prospects of an escalation also sent up oil prices and shares of energy companies.
“Investors are dealing with a lot of uncertainty right now,” said Patrick O’Donnell, chief investment strategist at Omnis Investments.
“Stock markets are a little more uncertain about how long this will go on, because of the implications for both growth and inflation the longer it goes on,” O’Donnell told CNBC’s “Squawk Box Europe” on Monday.
“Actually, it’s a question of… how long will this conflict last?”
The conflict with Iran entered its third day on Monday, as US President Donald Trump warned of more American casualties and said the conflict could last up to four weeks.
Defense stocks have increased in recent years as geopolitical tensions rise.
Defense companies have already posted big profits in recent years amid heightened geopolitical tensions, prompting governments to increase defense spending.
— CNBC’s Lim Hui Jie and Lee Ying Shan contributed to this report.
