Defense stocks rose sharply as the US and Iran exchanged military strikes, with aerospace and contractor shares leading market gains amid heightened geopolitical tensions.
Chinese defence stocks also surged on March 2 due to rising tensions in the Middle East. Major players like Avic Shenyang Aircraft and Xi'an Triangle Defense saw significant gains, while overall market sentiment was mixed ahead of a parliamentary meeting.
Global defense stocks edged higher on Monday as investors reacted to a military escalation in the Middle East over the weekend. The sector was a rare bright spot amid a broader market sell-off triggered by fears of a wider regional conflict.
Shares of Avic Shenyang Aircraft Company, recognised for producing defence equipment such as the J-35 stealth fighter, rose by more than 5.3%. The overall CSI defense index jumped by 3.4%, representing an annual increase of over 20%.
The move came after the US and Israel launched widespread attacks on Iran over the weekend that killed Iranian Supreme Leader Ayatollah Ali Khamenei, ending his 36-year rule. Retaliatory strikes by Iran against US bases in the Middle East killed three US service members.
Prospects of an escalation also led to a surge in oil prices and shares of energy companies.
“It’s very much one of uncertainty at the moment that investors are grappling with,” said Patrick O’Donnell, Chief Investment Strategist at Omnis Investments.
Defense companies have already posted massive gains over the past few years amid heightened geopolitical tensions, prompting governments to hike defense spending. European defense stocks in particular are sensitive to news on the development of the Ukraine-Russia war.
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The conflict with Iran entered its third day on Monday. The US President Donald Trump warned of further American casualties and said the strife could last for up to four weeks. In June last year, the US and Israel launched air strikes that damaged three Iranian nuclear sites.
Market participants are also watching energy prices, broader equity volatility, and corporate guidance from major contractors, as further escalation or de-escalation could significantly influence sector momentum and overall market sentiment.