Sweden has finalized a $4 billion military purchase agreement with France, acquiring four naval warships to double its air defense capabilities. The Swedish Prime Minister stated this marks the country's largest defense investment since the 1980s. European defense stocks saw a collective rise in early trading.
On Tuesday morning, Sweden announced it will spend $4 billion to purchase four naval warships from France, which will triple the country's air defense combat capabilities. Prime Minister Ulf Kristersson stated at a press conference in Stockholm that this military investment is Sweden's largest defense project since the 1980s.
The procurement involves the FDI-type defense intervention frigates from French shipbuilder Naval Group, with a total transaction value of approximately 40 billion Swedish kronor (equivalent to $4.25 billion). The first ships are expected to be delivered by 2030.
Kristersson emphasized: "This acquisition will expand Sweden's existing air defense capabilities by two times, demonstrating the significant weight of this decision and highlighting the strategic importance of naval power. I firmly believe this move will enable Sweden to substantially improve the overall security situation in the Baltic Sea region."
Following the Russia-Ukraine conflict, Sweden has completely transformed its national security strategy, formally joining NATO in March 2024 and ending its two-century tradition of military neutrality and non-alignment.
Defense Sector Sees Broad Gains During Tuesday's early European trading, European defense and military stocks experienced collective gains. Swedish aircraft manufacturer Saab Group rose 5.3% in early trading. German defense companies Rheinmetall, Renk, and Hensoldt saw gains between 5% and 8%, directly contributing to a 1.3% rise in Germany's DAX index. The pan-European Stoxx 600 blue-chip index increased by 0.8%.
Since the outbreak of the Russia-Ukraine conflict in 2022, European defense stocks have generally maintained an upward trend.
Citigroup analysts adjusted ratings on Monday: upgrading Saab stock to neutral and German defense giant Rheinmetall to buy rating, citing recent periodic corrections in the European defense sector. Analysts believe the market has largely priced in Saab's expected 11% performance growth between 2030 and 2035.
Citigroup also noted that the German domestic market accounted for only 38% of Rheinmetall's total revenue last year, with other European market businesses expected to continue experiencing significant growth. Combined with Germany's expanding defense budget, the company has ample room for performance growth. Additionally, the company has deep involvement in high-growth sectors such as drones, aerospace equipment, and land combat systems, providing distinct long-term development advantages.
Currently, multiple NATO countries are increasing their military capabilities. NATO has previously reached consensus to increase member states' defense spending as a percentage of GDP from 2% to 5% by 2035, from which European defense companies will benefit long-term.
However, after consecutive years of substantial gains, concerns are gradually emerging about the overall high valuation of defense stocks.
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