Donald Trump’s victory in the US elections on Wednesday has given a British weapons manufacturer a shot in at the arm - sending BAE Systems shares up to a new record high.
The company - which reportedly earns about 40% of its near-£18 billion revenue in the US - rose almost 7% by 4pm. Shares in smaller defence groups also climbed earlier today: Ultra Electronics was up 6%, and Cobham, Chemring and Meggitt were between 3.5% and 4.5%.
The Guardian speculated that the jump is a sign that investors are expecting governments to spend more on weaponry now that Trump is in power.
The Wall Street Journal had two theories on the spike: The first was that Europe may need to increase its own military spending if it can no longer count on American military support to combat problems on the Russian borderlands and Middle East.
It also theorised that the jump could relate to Trump’s plans to hold more NATO members to commitments to spend 2% of output on defence. Only five of NATO’s 28 member-states reportedly meet this commitment at present.
Trump’s pledge to “rebuild or depleted military” and “repeal the defence sequester” may have contributed to BAE Systemsshares increasing, The Telegraph wrote.
CNN quoted a Trump aide in September as saying that eliminating the sequester would amount to a roughly $500 billion reinvestment over 10 years.
Trump has also previously pledged to increase the Army by around 75,000 to 540,000 soldiers, increase the Navy by 42 ships to 350, and “provide the airforce with 1,200 fighter aircraft it needs”.
Of the BAE Systems increase, Sandy Morris, an analyst at Jefferies, told the Telegraph: “That’s about $80 billon of defence spending to get to that so there’s an inevitable knee-jerk reaction.”
The Trump campaign did not explain how the extra troops and war craft would be funded but Morris added that an end to sequestration would enable the military to better deploy its resources.
“The US Department of Defence has got its long-term wish of being able to plan long term, instead of staggering around not knowing where its funding is going to be.”