ASX defence shares lift amid NATO Summit decision to turbocharge spending to 5% GDP

ASX defence shares are rising amid the 32 member nations of NATO committing to a massive increase in military spending.

In the Hague Summit Declaration, NATO nations committed to lifting defence spending from 2% to 5% of GDP over the next 10 years.

NATO said:

United in the face of profound security threats and challenges, in particular the long- term threat posed by Russia to Euro-Atlantic security and the persistent threat of terrorism, Allies commit to invest 5% of GDP annually on core defence requirements as well as defence-and security-related spending by 2035 to ensure our individual and collective obligations …

The 5% commitment by 2035 is a substantial lift from the current target of 2% of GDP.

It will comprise at least 3.5% of GDP spent on core military requirements and up to 1.5% spent on defence investments, including infrastructure and building industrial capacity.

NATO reaffirmed its commitment to supporting Ukraine in its war with Russia.

As such, direct contributions to Ukraine's defence will be counted as part of each nation's defence spending.

Member nations agreed to new defence capability targets and will submit annual plans showing a credible, incremental path to 5% GDP.

NATO said it intended to rapidly expand transatlantic defence industrial cooperation to advance the 32 nations' collective security.

This includes eliminating trade barriers between allied nations and promoting defence industrial cooperation.

The 5% commitment is not just words, either.

Several NATO nations sign new defence cooperation agreements

The NATO allies signed several agreements to implement new multinational projects and expand existing ones.  

Belgium, Canada, Denmark, Germany, Greece, Italy, the Netherlands, Norway, Poland, Sweden, Türkiye, and the United Kingdom committed to the joint acquisition, storage, transportation and management of stockpiles of raw materials critical to the defence industry.

The materials include lithium, titanium, and rare earths.

This agreement will "help make NATO less vulnerable to supply shocks and reduce reliance on external providers", the organisation said.

Denmark and Sweden joined the existing Multinational Multi-Role Tanker Transport Fleet (MMF) program.

The fleet provides participating nations with critical capabilities in air-to-air refuelling, strategic airlift, and aeromedical evacuation.

NATO also signed a contract with Airbus Defence and Space to buy two additional A330 Multi Role Tanker Transport (MRTT) aircraft.

This will increase the current fleet from 10 to 12 aircraft.
 
Estonia, Finland, Italy, Latvia, the Netherlands, and Sweden announced the establishment of the first NATO Innovation Ranges.

This will support further integration of new military technologies and enable allies to test, refine, and validate new technological products.

'Milestone' agreement with Australia

The NATO Support and Procurement Organisation (NSPO), NSPA's governing body, also signed a partnership agreement with Australia.

The agreement will allow Australia's participation in the full range of NSPA's activities and services, including acquisition, logistics, and operational and systems support and services.

The organisation described the agreement as "an important milestone" in its cooperation with NATO partner countries around the globe.

NATO will next review its defence spending in 2029.  

ASX defence shares rising on Thursday

At the recent ASX Investor Day in Sydney, many analysts said defence was an investment theme that should not be ignored.

Here are some examples of ASX defence shares and how they are performing today.

Austal Ltd (ASX: ASB)

Austal is a defence shipbuilder and services provider whose clients include the Australian and US navies.

The Austal share price is up 3.07% to $6.05 on Thursday and up 149% over the past 12 months.

Droneshield Ltd (ASX: DRO)

Droneshield makes drone defence systems.

This ASX defence share is having a strong week following news that the company has received its largest order in its history.

The Droneshield share price is up 6.07% to $2.27 today and up 45% over the past 12 months.

Titomic Ltd (ASX: TTT)

Titomic produces lightweight titanium parts and provides industrial-scale metal additive manufacturing solutions.

These solutions include its patented Titomic Kinetic Fusion cold spray technology, which enables quick repairs of military equipment.

Titomic also manufactures multi-metal components such as barrels, ballistics shielding, casings, and armour systems.

The Titomic share price is up 3.7% to 28 cents today. This ASX defence share has risen 238% over the past 12 months.

Electro Optic Systems Holdings Ltd (ASX: EOS)

This defence technology company specialises in advanced weapon systems, counter-drone solutions, and space domain awareness.

The Electro Optic Systems share price is up 4.02% to $2.72 on Thursday and up 74% over the past 12 months.

VanEck Global Defence ETF (ASX: DFND)

The VanEck Global Defence ETF is up 1.42% to $34.17 today and up 70% since its inception last September.

This exchange-traded fund (ETF) holds 29 stocks.

About 52.2% are US shares, 10.6% are in France, 8.4% in Italy, 8% in South Korea, and 6.4% in Sweden.

Almost 70% of these stocks are aerospace and defence companies, 19.6% are professional services firms, and 10.3% provide software.

The post ASX defence shares lift amid NATO Summit decision to turbocharge spending to 5% GDP appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has positions in Vaneck Global Defence Etf. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Austal, DroneShield, and Electro Optic Systems. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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