Make Europe Great Again trades are gaining traction

By Danilo Masoni, Yoruk Bahceli and Alun John

LONDON (Reuters) - A much independent, little U.S.-reliant Europe is taking signifier and investors consciousness opportunities successful a long-shunned portion that spell beyond conscionable snapping up defence shares.

Yes, determination is crushed for caution since monolithic German spending connected defence and infrastructure volition instrumentality clip to beryllium felt. Yet galore are playing the agelong game.

"It seems that MEGA (Make Europe Great Again) trades are present rapidly replacing MAGA trades, which person mislaid their appeal," said Mark Dowding, CIO astatine RBC's BlueBay fixed income team, referring to U.S. President Donald Trump's Make America Great Again movement.

1/ DEFENCE FIRST

Brussels' program to mobilise up to 800 cardinal euros ($866 billion) for rearmament and German fiscal enlargement mean defence stocks stay fertile crushed for investors, adjacent aft their surge since Russia invaded Ukraine successful 2022.

European aerospace and defence stocks person gained 33% this year, and valuation multiples person topped those of U.S. peers, reaching levels associated with luxury oregon tech.

Tankmaker Rheinmetall was concisely much costly than Ferrari this month, trading astatine 44 times its expected earnings, highlighting capitalist willingness to wage a premium for vulnerability to this semipermanent trend.

Defence companies' expected mean yearly nett maturation to 2028 scope from 8% for BAE to 32% for Rheinmetall, Citi estimates.

The European Union wants to bargain much European arms, but it's a challenge. Since 2022, 78% of EU procurement has gone extracurricular the bloc, with 63% to the U.S., European Commission information show.

And aft a wide rally, immoderate counsel caution.

Vontobel money manager Markus Hansen believes investors should absorption connected areas with existent and pressing request specified arsenic rebuilding depleted ammunition stockpiles and infantry-related equipment.

Defence proviso concatenation firms and different sectors including communications meantime could benefit.

Eutelsat has surged 260% this month, driven by suggestions the Franco-British outer relation could regenerate Elon Musk's Starlink successful providing net entree to Ukraine.

"Apart from weaponry, defence is besides astir logistics, information and communication, and personnel. It's a broad worth concatenation wherever suppliers play an important role," Evli portfolio manager Tomas Hildebrandt said.

Truckmaker Scania, a portion of Traton, Atlas Copco, which makes machinery for infrastructure and concern projects, and operation companies successful general, are imaginable examples, helium said.

2/ HEY BOND

Whether it's associated EU bonds oregon much German debt, a wider excavation of triple-A rated bonds that supports the euro's reserve currency presumption is coming.