- European defence stocks fell after reports that Germany may scrap its multi-billion-euro F126 warship programme.
- Shares of Rheinmetall dropped as much as 14%, with other defence firms also trading lower.
- Berlin is reportedly considering buying smaller frigates instead, raising questions about future defence spending plan
Shares of European defence companies plummeted on Wednesday after reports suggested that Germany could scrap plans to build its multi-billion-euro warship.
The German government is considering dropping plans to build six F126 frigates, a project that would have marked the country's largest warship commission since World War II. Instead, Berlin is reportedly exploring the purchase of eight smaller Meko A-200 frigates, The Financial times reported.
The report sparked a sharp reaction in financial markets, with investors reassessing the outlook for companies expected to benefit from the project. German munition maker Rheinmetall, which was widely viewed as a key beneficiary of the programme, saw its shares tumble by as much as 14 per cent during early trading.
Rheinmetall had been expected to take over as lead contractor for the F126 programme in a deal reportedly valued at up to €12.8 billion, subject to approval by Germany's budget committee. The company was set to assume responsibility for the project from Dutch shipbuilder Damen Naval following years of delays.
The decline was not limited to Rheinmetall. Other defence-related stocks across Europe also moved lower, reflecting broader investor concerns. German firms Hensoldt and Renk recorded a fall of 2.9% and 4%, respectively. Meanwhile, Sweden's Saab, Leonardo, and British giant BAE Systems all experienced 2.6%, 3.5%, and 1.6% declines, respectively. The pan-European STOXX 600 index fell 0.1%.
The latest decline comes amid broader weakness in European defence shares, driven by investor concerns that military spending commitments may fall short of expectations as geopolitical tensions show signs of easing. A cancellation or major restructuring of the F126 programme would not only affect Rheinmetall but could also complicate Germany's broader military strategy.
Berlin has also vowed to build the strongest conventional military force in Europe by 2039. Germany is also preparing to acquire a 40 per cent stake in defence manufacturer KNDS, the Franco-German tankmaker, that is expected to launch an initial public offering in the near future.
Neither Rheinmetall nor the German government had publicly commented on the report at the time of writing.
