Against a backdrop of mounting global instability, are there economic opportunities present? If you are investment planning in Cheshire or other areas with a strong aerospace presence, one option people consider is the defence industry.
In response to fast shifting geopolitical headwinds and challenges to international security, the Government has announced an increase in defence spending to 2.6%, effective from April 2027.
Analysts are expecting defence stocks to rise following announcements of spending increases with defence companies in prime position to become major beneficiaries. With European leaders rushing to reinforce military capability, this reflects long term thinking about new security needs, which will likely impact the markets for years to come.
The firms that primarily stand to gain are, unsurprisingly, domestic defence companies involved in the production of combat vehicles, missiles, submarines and fighter jets. Other areas of security include electronic warfare systems, testing and evaluation, research and development and nuclear equipment and services. However, some investors may alternatively choose to look overseas and spread themselves widely.
With high-tech modern armaments, multiple firms often collaborate in the production of defence machinery, meaning projects benefit various firms instead of single suppliers.
Exposure to defence therefore provides an essential hedge, with the market rapidly adjusting to the new reality and investors poised to gain the most. The defence sector enjoys substantial government spending, while insulated from consumer volatility. As such, it could see significant structural growth.
With the future of international security changing, it might be unwise for global investors to not take heed of the scale of unfolding change.
