Global military stocks are booming: Trump's plan to increase military spending by $500 billion a year has become the strongest catalyst

The Zhitong Finance App learned that US President Donald Trump intends to propose a plan to increase the US military budget. This move is injecting new vitality into global defense stocks. At the beginning of the new year, European defense stocks performed particularly strongly. Various signs suggest that the global situation this year seems to be dominated by geopolitical factors.

This year, the US has launched a military operation in Venezuela, and the White House said Trump would not rule out using force to acquire Greenland. On Wednesday, Trump called for a $500 billion increase in annual defense spending. Earlier, it was reported that Trump is asking the US to increase annual defense spending by more than 50% to reach 1.5 trillion US dollars in 2027.

In addition, Trump also signed an executive order on Wednesday requiring major US defense contractors cooperating with the government to stop share buybacks, stop paying dividends, and set the upper limit of executive remuneration at $5 million per year until they invest more in factories and R&D to accelerate development.

On Thursday, a basket of European defense stocks compiled by Goldman Sachs Group rose as much as 3.8%, and this week's increase extended to around 13%. In the US, Northrop Grumman (NOC.US) and Lockheed Martin (LMT.US) rose more than 8% in pre-market trading, rebounding from the decline caused by Trump's call the day before to limit executive pay and shareholder returns in the industry.

Defense stocks also rose in Asia, including South Korea's Hanwha Aerospace, Taiwan's aviation industry development company, and Japan's Defense Machinery Co., Ltd.

“Geopolitics is an unavoidable theme until 2026,” said Neil Wilson (Neil Wilson), a British investment strategist at Saxo Markets (Saxo Markets). In Europe, the biggest gainers include BAE Systems in the UK. Nearly half of the company's revenue comes from the US, and its share price rose as much as 7%. The stock price of German heavy equipment manufacturer Rheinmetall increased by 4.1%, reaching the highest level since October last year.

“The limitation on return on capital is a gradual negative impact, but the scale is manageable,” Morgan Stanley analyst Christine Levager said in a report. She also added that if dividends and share repurchases are restricted, this could free up billions of dollars for investment projects such as capacity expansion or mergers and acquisitions.