European defence shares recorded a sharp drop of up to 7%, following statements by Kirillo Budanov, a senior adviser to Ukrainian President Volontimir Zelenski, that a peace agreement with Russia can be reached soon. Shares such as Rheinmetall, Hensoldt and Leonardo, which had been ejected 500% since February 2022, retreated significantly. Instead, construction companies and cement companies were strengthened over 5% due to expectations of post-war reconstruction. Analysts point out that the market questions whether governments will continue high defence spending, even though participants remain cautious about the outcome of the talks.
Analyticalally:
European defence companies shares retreated, as its senior official Ukraine He appeared optimistic about a peace agreement with Russia. At the same time, construction companies were strengthened with the expectation that a truce could detonate post-war «explosion» reconstruction.
Goldman Sachs' defensive stock basket retreated up to 5.1% after the statements of Kirillo Budanov, a senior adviser to Ukrainian President Volontimir Zelenski that a solution to the war may not be too long. Rheinmetall, Hensoldt and Leonardo, launched in recent years due to the increase in EU defence spending, retreated over 7%.
«Falling is mainly a result of climate», stated Jens-Peter Rieck of MWB Research. «What the market may be starting to question is whether governments will continue to spend at these high levels».
The defence sector approximately 500% have been ejected since Russia invaded Ukraine in February 2022, sparking the worst conflict in Europe since World War II. This rise is due to an increase in European defence and re-armament spending, while profits have been largely maintained this year, despite high valuations, as the Middle East war has strengthened geopolitical uncertainty.
Talks on ending the war in Ukraine have so far yielded little results, and Budanov's optimistic assessment in an April 4 interview in Bloomberg does not seem to be shared by some Russian officials. Market participants remain cautious.
«Without fully rejecting a possible positive development, similar statements have been made in the past», said Alessandro Pozzi of Mediobanca.
Even if there is an end to hostilities, it is unlikely that this will substantially change the course of defence spending.Ukraine and European countries are expected to continue to strengthen their military capabilities against a potential future threat from Russia.
The state bonds of Ukraine and Europe, as well as the euro, were strengthened after the Bundanov statements, while shares of companies that could benefit from a truce also recorded a rise.
A UBS stock basket was strengthened up to 3.4%, reaching the highest level since February, starring Wizz Air Holdings and Ferrexpo, which rose twice-digitally.
Construction and cement industries They were also strengthened due to the expectations of reconstruction projects in Ukraine, with Buzzi, Heidelberg Materials and Holcim recording a rise of over 5%.
Among other shares, Coca-Cola HBC was strengthened up to 4.4%. The bottling company drew about 14% of its sales from Russia in 2025, according to Bloomberg figures.
Source: MoneyReview
