×

Defense stocks predicted to surge on Paris terror

The shares of defense and aerospace companies traded close to record highs Wednesday, as a Western alliance carried out airstrikes in Syria against the Islamic State in retaliation for the Paris terror attacks.

Shares in defense firms have risen steadily so far this year, with analysts expecting continued demand as governments look set to step up attacks on ISIS.

Lockheed Martin and 33rd Fighter Wing personnel work with 96th Fuels Flight airmen at Eglin Air Force Base, Florida.
Photo: Samuel King Jr. | Flickr Commons
Lockheed Martin and 33rd Fighter Wing personnel work with 96th Fuels Flight airmen at Eglin Air Force Base, Florida.

Shares in fighter jet maker Lockheed Martin traded higher shortly after market open Wednesday, having peaked at an all-time intraday high of $225.11 per share on Tuesday. The group has seen gains of over 15 percent so far this year

Weapons and military group Raytheon also gained following the attacks over the weekend, trading close to record highs Wednesday at around $123.

"While there are a number of variables that affect stocks and pricing, the recent terrorism spawned by the scourge of ISIL (Islamic State) means that governments are looking to build up their armoury and weaponry to take on rogue entities like this," Chief analyst at StrategicAero Research, Saj Ahmad told CNBC.

"And until (ISIS) is defeated, interest in defense and, by extension, defense stocks will rise."

Smart bombs for Saudi

On Monday the U.S. State Department approved the sale of $1.29 billion in smart bombs to Saudi Arabia, which it needs to help boost supplies that were used in airstrikes against ISIS and in its battle against insurgents in Yemen, according to the Pentagon.

The proposed sale includes thousands of smart and general purpose bombs, the Pentagon's Defense Security Cooperation Agency (DSCA), said in a statement on Monday.

"Given the likely military operations that result from the Paris attack, and worsening tensions in the Middle East, there are few doubts that defense spending in the West and in export markets will continue to rise. One big driver behind investor sentiment is the need to replace precision guided munitions already expended in the various conflicts underway," vice president of analysis at Teal Group, Richard Aboulafia

Meanwhile in Europe, tensions are running high amid more security concerns following the Paris attacks on Friday which left 129 people dead.

On Wednesday morning seven people were arrested and at least two suspects died following a police raid in the Paris suburb of Saint-Denis.

Also on Wednesday, Air France said that two Paris-bound flights that had been diverted following anonymous threats had landed safely.

'Full understanding'

The European Union said it would show "full understanding" to governments boosting defense spending following the attacks in Paris, after French President Francois Hollande pledged a massive increase on funding for security and defense.

Defence cuts have been cancelled as far out as 2019 as the country prepares to step up its campaign to take on ISIS.

"I think it comes down to whether or not this is a one-off event. Attacks such as 9/11, London and Madrid, in the end were seen to be one-off events," Head of Multi Asset Strategy at NN Investment Partners, Valentijn van Nieuwenhuijzen, told CNBC Wednesday.

"It is possible that this may be some sort of continuous terrorist guerrilla war, and then things will really start to change and lasting corrections in all sectors, particularly tourism and airlines (will be) justified," he said.

Conversely, shares of some of Europe's largest travel and leisure firms have been under pressure this week following the attacks. Some investors fear the tragic events may have lasting implications for tourism in the region.

Lufthansa, easyJet, Ryanair and British Airways parent IAG all traded lower Wednesday, while Air France recovered some earlier losses to trade around 0.5 percent higher.