Paris attacks: Isis fears push defence and military stocks higher while tourism stocks sink

BAE Systems and Rolls Royce saw their shares boosted by investors expecting military spending to increase.

Shares in BAE Systems rose after the Paris attacks (BAE Systems)

Governments are expected to ramp up security spending in the wake of the attacks in Paris.

That's the story if you ask investors, who have been putting their money into defence and security companies since the attacks.

BAE Systems and Rolls Royce, an engineering firm, saw their shares boosted by investors expecting military spending to increase. BAE’s share price was up 5 per cent by the end of the day on Wednesday, while Rolls Royce (the jet engines company, rather than the carmaker) saw shares up 5.7 per cent. In France, shares in Airbus, which makes military aircraft as well as civilian planes, were up 3.5 per cent by Wednesday.

Meanwhile shares in Smiths Group, an engineering company that makes airport scanners, has risen 6.7 per cent by Wednesday and shares in Westminster Group, a defence company that also makes airport scanners, have doubled in the last few days.

"We expect extra spending on policing, private security and military intervention,” analysts at Citi said in a note to investors.

Meanwhile tourism stocks are sinking as investors bet on people scaling back holiday plans because of the threat of terrorism. Easyjet shares were down 5.4 per cent on Wednesday after Carolyn McCall noted that passengers should expect increased security at airports following the explosion of a Russian plane of Egypt this month. IAG, which owns British Airways, saw its shares drop 3.3 per cent by Wednesday while Carnival, the cruise ship operator, saw shares down 2 per cent.

Analysts have also warned about the effect of the Paris attacks on the French economy. Joshua Mahony, analyst at IG, said that the need for more military spending could threaten France’s attempts to pay down its national debt at a crucial time in its economic recovery.

“President Francois Hollande is looking to flout EU rules over budget deficits in order to cancel defence cuts, while promising heightened security across the board,” Mahony said.

But spending is unlikely to be confined to the French Government as leaders across Europe and the US react to the co-ordinated attack in Paris. Add ISIS claimed responsibility for the deaths of hundreds more in a Russian plane over Egypt may add fuel to GoThe downing of a Russian plane over Egypt by ISIS-linked terrorists only goes to expand the idea that military spending will rise globally over time.