(Reuters) – European arms manufacturers shares continued their rally on Tuesday, albeit at a slower pace, on prospects of higher defence spending, ahead of talks between U.S. and Russian officials over a possible Ukraine peace deal.
Shares in Rheinmetall, Renk, Hensoldt and steelmaker Thyssenkrupp rose for the second day in a row, up between 1-7% at 1108 GMT.
Italy’s Leonardo and France’s Thales were up between 1.8% and 3%, respectively.
“I see investors pricing higher and more concentrated spending (toward Europe) moving forward, driving European defense stocks,” Tom Guinchard from Pareto Securities AB said.
Shares in German defence group Rheinmetall spiked over 3% to 966 euros at start of trading, but later eased to 943 euros.
Some analysts have pointed to a possible short squeeze in shares of Rheinmetall as driving Monday’s sharp rally.
According to regulatory filings, as of Feb. 7, D. E. Shaw & Co held a short position in the company of 0.48%, while Citadel Advisors Europe, which has held a short position in Rheinmetall for nearly 16 months, currently has a short of 0.86%.
The aerospace and defence index rose nearly 1.7% after surging 4.6% on Monday.
“We will begin seeing alternative financing solutions for defense procurement and spending moving forward, along with increased defense budgets across European countries,” Guinchard added.
German defence stocks have risen by between 14% and 25% so far this week, with Thyssenkrupp being the top gainer.
(Reporting by Linda Pasquini, additional reporting by Danilo Masoni and Ozan Ergenay; Editing by Amanda Cooper)
