European Defense Stocks Gain as Ukraine War Intensifies

Defense ETFs gained momentum again last week as investors reacted to rising geopolitical risks across the Middle East and Eastern Europe.

European defense ETFs moved sharply higher last week as geopolitical tensions intensified across multiple fronts, reinforcing investor focus on military and security-related industries.

The sector benefited from a combination of renewed instability in the Middle East, escalating violence in Ukraine, and continued political support for higher defense spending across Europe. Defense equities have already been among the strongest-performing market themes since Russia’s invasion of Ukraine in 2022, with several major European defense stocks rising between three and five times over that period.

While the sector experienced a weaker start to 2026 after an exceptional 2025 rally, last week’s developments have reignited momentum.

Iran Conflict Keeps Security Risks Elevated

Markets continued to monitor fragile negotiations between the United States and Iran after reports suggested talks remained far from a breakthrough. President Donald Trump renewed pressure on Tehran over the reopening of the Strait of Hormuz. At the same time, geopolitical risks in the Gulf remained elevated following drone attacks targeting infrastructure in the United Arab Emirates.

Although Iran reportedly submitted another peace proposal through intermediaries, the terms were widely viewed as insufficient to secure a lasting agreement. Investors interpreted the continued uncertainty as another sign that global military tensions are unlikely to ease in the near term.

A Sector Under Pressure Since the Iran War

Last week’s gains follow a sharp reversal for the sector since late February. Unlike prior geopolitical shocks — such as Russia’s full-scale invasion of Ukraine in 2022, which sent European defence stocks surging — the outbreak of the Iran conflict on February 28 triggered a selloff. MSCI’s Europe Aerospace and Defence Index dropped 9.2% in March, its biggest monthly decline in five years. Shares in Czech arms maker CSG fell nearly a third since the conflict began, while Germany’s Rheinmetall and Renk lost around 10% and Sweden’s Saab dropped approximately 12%.

Several factors drove the retreat. Valuations were stretched — the sector was trading at around 29 times earnings forecasts at the outbreak of the war, close to a record high — while order intake came in slower than expected, with contracts in France and Britain delayed or phased due to fiscal constraints. The Iran conflict also renewed focus on low-cost drones and interceptors, raising questions among investors about longer-term demand for higher-priced legacy platforms. Net inflows into European defence ETFs remained positive through the period, with LSEG data showing $377 million in net inflows into the WisdomTree Europe Defence ETF alone since the start of the conflict.

Russia Escalates Attacks on Ukraine

Over the weekend, Russia launched one of its largest attacks on Kyiv in months, using drones, ballistic missiles, and the hypersonic Oreshnik missile. The strikes damaged civilian infrastructure, schools, markets, and government buildings, while European leaders condemned what many described as a major escalation in the war.

The renewed assault came as European governments continue accelerating rearmament plans first announced after Russia’s 2022 invasion. NATO members have increasingly committed to larger military budgets, while defense manufacturers across Europe continue receiving large-scale orders tied to ammunition, missile systems, surveillance technology, and air defense capabilities.

Sweden’s decision last week to purchase four FDI frigates from France’s Naval Group further highlighted how defense spending remains a central political priority across the region. The deal also reinforced growing military cooperation between European allies.

Defense ETFs Extend Strong Momentum

Against that backdrop, European defense ETFs delivered some of the strongest thematic performances of the week.

The Europe Defense category gained 7.585% over the week, while Global Defense ETFs rose 5.133%. Europe-focused strategies also continued attracting strong investor demand, gathering more than €2 billion in year-to-date inflows.

Among the standout funds, WisdomTree Europe Defence UCITS ETF (WDEF) climbed 7.840% during the week, bringing its year-to-date inflows to more than €1.19 billion.

Amundi Stoxx Europe Defense UCITS ETF (DEFS) gained 7.993%, while iShares Europe Defence UCITS ETF (DFNC) advanced 8.314%, one of the strongest performances among major defense ETFs.

Broader global strategies also moved higher. VanEck Defense UCITS ETF (DFEN) rose 4.938%, while Future of Defence UCITS ETF (ASWC) added 5.946%.

Defense technology exposure also remained in focus, with Global X Defence Tech UCITS ETF (ARMR) gaining 4.735% during the week as investors continued rotating toward companies linked to surveillance systems, aerospace electronics, missile defense, and next-generation military technologies.

The combination of rising geopolitical instability, expanding military budgets, and growing industrial execution is increasingly turning defense from a short-term tactical trade into a longer-term structural investment theme for European ETF investors.

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Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.