European defence stocks surged on Wednesday following the alarming incursion of Russian drones across Poland's frontier, which escalated regional tensions to unprecedented levels.
Shares in FTSE 100 heavyweight BAE Systems concluded the London trading session up 2.1 per cent at 1,830p, whilst Italy's Leonardo climbed 2.4 per cent, Germany's Rheinmetall advanced 3.3 per cent and France's Thales gained 3 per cent, as reported by .
These movements collectively added £5.2bn to the market valuations of the quartet of companies.
Polish president Donald Tusk declared that Polish airspace had been "violated" by a "huge number" of Russian drones, with several intercepted by Nato pilots.
The episode triggered extensive discussions between Tusk, Keir Starmer and fellow European leaders, alongside exchanges with US president Donald Trump, who posted to Truth Social: "What's with Russia violating Poland's airspace with drones? Here we go!".
During a gathering of European defence ministers in London, º£½ÇÊÓƵ defence secretary John Healey denounced Russia's actions and pledged to "look at options" for strengthening Nato air defences above Poland.
"We face a new era of threat. War in Europe, rising Russian aggression, and last night, Putin hit a new level of hostility against Europe," Healey said.
"We saw across Nato's eastern border a serious violation of Polish airspace, deep enough for Warsaw airport to be closed, and Nato jets shooting down Russian drones in what is the first defensive action of its kind since Putin launched his full scale attack on Ukraine.
"Russian actions are reckless. They are dangerous. They are unprecedented. We see what Putin is doing yet again. He is testing us yet again."
º£½ÇÊÓƵ ups defence spending
European defence equities have surged since the beginning of the year following collective pledges from European leaders to substantially increase defence expenditure in response to mounting Russian aggression.
Starmer has committed to raising defence spending to 2.5 per cent of GDP by 2027, escalating to 3 per cent in the subsequent parliament.
BAE shares have climbed by nearly 60 per cent since the year's commencement, whilst defence contractor Babcock's equity has more than doubled, positioning it amongst the London Stock Exchange's top performers.
"Clearly this heightens geopolitical risk once again, and despite Donald Trump's controversial efforts to broker a peace deal between Russia and Ukraine, it doesn't feel like we're edging any further away from the brink," said Danni Hewson, head of financial analysis at AJ Bell.
"If you explained the current geopolitical situation to someone back in 2021, you'd have some difficulty convincing them that in such a scenario, the global stock market would be hitting record highs, as it is right now."
On Monday, the º£½ÇÊÓƵ's defence ministry committed to investing £250m in funding five "defence growth deals" across the º£½ÇÊÓƵ to "unleash the potential of local authorities, businesses and research institutions to support º£½ÇÊÓƵ defence" in a move that could generate thousands more jobs in the sector.
The government has stated that the funds will aid in establishing enduring collaborations between national, devolved and local government, bringing together businesses and research institutions to utilise local expertise and resources in defence and dual-use sectors.
Tom Tugendhat, MP for Tonbridge, who held the position of security minister from September 2022 to July 2024, asserted that the City of London has a "vital role to play" in the nation's resilience. He supported a report advocating for increased participation from the financial services sector to enhance defence spending in the º£½ÇÊÓƵ.
