- BAE Systems
- 02 March 2026 13:47:41
Source: Sharecast
Publishing an initial response on Monday to the outbreak of hostilities in the Middle East, the Wall Street bank flagged a number of risks, including disruption to logistics and global supply chains, higher energy costs and reduce air traffic in the region.
However, it also noted that defence firms could benefit from an increase in spending.
“With the US administration likely focussed on the situation in the Middle East, at least near term, it could reinforce the need for Europe to focus on its own security and strategic autonomy going forward,” Morgan Stanley wrote.
“To do so requires a significant increase in defence spending over the coming years, underpinning our ‘overweight’ rating on the sector”.
It also argued that “prolonged instability or further escalation could drive upside pressure to defence budgets” in the Gulf region, while in the US, the White House has indicated it wants to raise the country’s defence budget by around 50% to $1.5trn in 2027.
Morgan Stanley said around 10% of BAE’s sales were in the Gulf, and 45% in the US.
Also well placed were Italy’s Leonardo, France’s Dassault Aviation and Norway’s Kongsberg.
In contrast, Morgan Stanley said the aerospace sector was vulnerable to disruption to complex global supply chains, higher oil prices and air space closures in the Middle East.
BAE was up 7% at 2,267p as at 1330 GMT, one of a number of defence stocks trading higher on Monday. In contrast, aerospace specialist Rolls-Royce Holdings was off 2% at 1,303p.