The war's not over: JPMorgan says investors were too quick to sell Europe defense stocks on hopes of Ukraine peace

By Jules Rimmer

Ukraine is unlikely to accept the 28-point peace plan drafted by the U.S. and Russia - and so the war continues

The weakness in defense stocks came even as Rheinmetall was making bullish forecasts

In the past month, European defense stocks XX:SXPARO have been under pressure, falling roughly 10%. Rumblings of a proposed peace deal to end the Ukrainian war, struck by the Americans and the Russians, accelerated this decline in Wednesday trading. For JPMorgan analyst David Perry, though, "this reaction is unjustified and ... provides a compelling entry point to the sector."

His reasoning was twofold. First, the details of the plan would appear to be unacceptable to Ukraine unless there is a dramatic shift in the mindset in Kyiv - so the war's end may not be imminent. Second, in the unlikely event of a peace deal being signed soon and according to the terms being floated, it would essentially amount to a Russian victory, which, Perry opined, would drive European defense spending even higher.

In a note published Thursday, Perry cited an article in the Financial Times that said neither Ukraine nor other European countries had been involved in the drafting of the cease-fire proposals. Perry said that, among other objections, Ukraine was very unlikely to cede territory it still controls, abandon key weaponry and halve the size of its armed forces. That's according to the plan that U.S. special envoy Stephen Witkoff is apparently pressing Ukrainian President Volodymyr Zelensky to accept.

Perry said he thinks the war will continue well into 2026, based on conversations with defense experts and political contacts. Perry recommended that Europe urgently build up its military capabilities so that its security is no longer reliant on U.S. largess.

The decline in stock prices came despite a statement from Germany's Rheinmetall AG (XE:RHM) on Tuesday, which predicted its revenues would quintuple by 2030 from its 2024 total of EUR9.8 billion, boosted by robust demand for its weapon systems during Europe's rearmament.

The war in Ukraine has catalyzed a dramatic rerating of defense stocks in Europe. Despite recent weakness and the repeated attempts to establish a truce in 2025, the STOXX Europe Aerospace and Defense Index has rallied 54%.

The U.S.-listed exchange-traded fund EUAD EUAD, the largest holdings of which are Airbus SE (FR:AIR), Rheinmetall, BAE Systems (UK:BA), Thales (FR:HO) and Safran (FR:SAF), has delivered a 17% return. In Thursday morning trading EUAD were trading up 1.66%.

-Jules Rimmer

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11-20-25 0758ET