European defence stock rally goes into reverse on funding concerns

1. 1. The Stoxx Europe Targeted Defence index has fallen more than 15% since its January peak, reversing a multi-year rally.
2. 2. Investor focus has shifted from the scale of defence spending to how governments will fund it amid rising borrowing costs.
3. 3. UK defence secretary John Healey resigned, saying the government was unwilling to commit sufficient resources to defence.
4. 4. Czech Prime Minister Andrej Babiš said the country will probably miss the NATO spending benchmark of 2% of GDP.
5. 5. Morgan Stanley downgraded European defence to 'neutral' from bullish, citing a lack of catalysts and lagging earnings revisions.
6. 6. Investors are shifting from traditional defence contractors to tech-oriented stocks like drone makers and military IT firms.
7. 7. Citi's Charles Armitage said the market appears to be in 'the last stretch' of the European defence trade, with easy money already made.