It marked a welcome boost for the sector, which had recently seen a multi-year rally run out of steam<\/a> amid concerns of faltering European defense spending plans. <\/p>\n BAE Systems CEO Charles Woodburn welcomed the announcement, which he said “provides much-needed clarity for industry and a clear strategic direction for our armed forces.”<\/p>\n Stock Chart IconStock chart icon U.K. defense stocks have enjoyed strong gains over the last five year, amid higher military spending. <\/p>\n The FTSE 350 Aerospace & Defense is up by around 540% over the last five years, compared to a 120% return for the Dow Jones U.S. Select Aerospace & Defense Index over the same period, reflecting a significant increase in defense spending among European and NATO allies.<\/p>\n “The big unknown is how long the new rally will last,” Dan Coatsworth, head of markets at AJ Bell, said over email. “Investors had recently grown tired of the ‘more\u00a0defense\u00a0spending is coming’ messaging given it is old news to the market.” <\/p>\n “Shares in the sector have already priced in a stronger earnings pipeline, with valuations starting to look toppy for many key stocks. For example, BAE Systems traded on 27 times earnings in March this year versus just 12-times four years earlier.”<\/p>\n “Investors will now await details on which stocks will benefit from the extra government spending,” Coatsworth added. “Even then, there is no certainty that earnings will emerge as expected. The\u00a0defense\u00a0sector is no stranger to project delays and cancellations.”<\/p>\n Which contractors are set to benefit? <\/p>\n Saxo UK Investor Strategist Neil Wilson highlighted BAE as a winner from the DIP, which will include \u00a38.6 billion over the next four years for the Tempest \u2014 a sixth-generation fighter jet, for which BAE Systems is responsible for the overall aircraft design and flight systems<\/p>\n Wilson said: “We also see Chemring \u2013 a specialist in sensors, electronic warfare and counter-drone technology, coming out of this rather well.”<\/p>\n “See also Cohort<\/a>, which trades 3% higher on the announcement. Rolls-Royce<\/p>\n gets a lift from nuclear power\/Tempest engine considerations, while QinetiQ is one to watch in the field of AI, robotics and autonomous warfare,” he added.<\/p>\n Stock Chart IconStock chart icon High U.K. borrowing costs could put a ceiling on defense spending, analysts say. <\/p>\n![\"hide](\"https:\/\/static-redesign.cnbcfm.com\/dist\/a54b41835a8b60db28c2.svg\")
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