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RUSSIA-UKRAINE CEASEFIRE WOULDN'T SHIFT INVESTORS OUT OF DEFENCE STOCKS, MS CLIENTS SAY

Morgan Stanley equity strategists hosted a webcast attended by over 340 institutional investors on Wednesday, and asked the generalist investors some questions about what would change their views on defence stocks.

Defence stocks have been surging this year as European governments increase spending as the Trump administration says it will be less involved in the defence of Europe.

Negotiations to end the ongoing war between Russia and Ukraine are also concentrating minds. But a peace deal may not be a gamechanger.

"Interestingly, 54% of investors we surveyed would not change their EU defence positioning in the event of a full Russia/Ukraine ceasefire, while 28% would actually add in such an event," the MS strategists write.

Of those they asked 28% had no exposure to European defence, 16% were underweight and 19% neutral. Over a third were overweight.

And what about other catalysts that could prompt them to add?

Almost a third of those polled indicated concrete announcements on country defence spending plans would trigger them to add EU defence exposure.

"25% want to see visibility on earnings, and 24% would add in the event of more attractive valuations" says MS.

One factor keeping them from adding is the perception that valuations are too high, while other reasons are fiscal constraints in the rest of Europe beyond Germany and investors' need to do more work on the sector.

(Lucy Raitano)

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