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Defence Stocks Surge Amid Global Tensions

  //stocks-investing.news-articles.net/content/202 .. 0/defence-stocks-surge-amid-global-tensions.html
  Published in Stocks and Investing on Friday, February 20th 2026 at 5:56 GMT by This is Money
      Locales: UNITED KINGDOM, UNITED STATES, GERMANY, FRANCE

By [Your Name], Financial Correspondent

Published: February 20th, 2026

The once-fraught landscape of defence stock investment is undergoing a significant transformation. Historically shadowed by ethical concerns, political risks, and the moral implications of profiting from conflict, the sector is now experiencing a surge in interest driven by escalating global tensions. This shift begs the question: are defence stocks a sensible investment in the current climate?

Geopolitical Drivers and Recent Performance

The war in Ukraine, persistent instability in the Middle East, and China's assertive military expansion have collectively reshaped the geopolitical landscape, directly influencing investor attitudes. These factors have prompted a re-evaluation of the defence industry, positioning it as a potentially stable and profitable sector. Over the past year, leading defence companies have demonstrated strong performance. BAE Systems, the UK's flagship defence contractor, has seen its share price climb by nearly 23%, while Rolls-Royce, a crucial supplier of engines for military aircraft, has enjoyed a 20% increase.

This upward trajectory hasn't gone unnoticed by fund managers. Nick MacLeod, joint fund manager of the Fidelity Ethical International fund, confirms, "The recent geopolitical instability has certainly focused minds," indicating a growing awareness and acceptance of defence stocks within investment portfolios. The demand isn't just limited to publicly traded companies; private defence contractors are also attracting increased investment, though data remains less transparent.

The Enduring Ethical Debate

The ethical dilemma remains central to the conversation. For many, the notion of financially benefiting from warfare is fundamentally objectionable. However, a counter-argument posits that defence companies play a vital role in national security, and responsible manufacturers can contribute to deterring aggression. This perspective suggests that investment in these companies isn't about promoting conflict, but about enabling nations to defend themselves and maintain stability.

MacLeod acknowledges this complexity, stating, "There's no easy answer. It's a personal decision," highlighting the importance of individual investor values. ESG (Environmental, Social, and Governance) investing is evolving, and some funds are beginning to create nuanced criteria that allow for limited exposure to defence companies deemed to be operating responsibly and contributing to legitimate security interests.

Navigating Political and Regulatory Risks

Defence companies are inherently exposed to political risk. Their revenue streams are heavily dependent on government contracts, making them susceptible to changes in policy, budget cuts, and shifting geopolitical priorities. A new administration with different defence spending plans could significantly impact profitability. Furthermore, the potential for sanctions related to arms sales to certain countries adds another layer of complexity.

Recent regulatory changes concerning export controls and international arms treaties are also adding to the risk profile. Compliance with these regulations is costly and time-consuming, and any violations can lead to significant financial penalties and reputational damage.

A Sensible Investment? Key Considerations The decision to invest in defence stocks requires careful consideration of several factors:

• Long-Term Geopolitical Outlook: Current tensions show no immediate signs of abating. Experts predict continued demand for defence equipment and technologies in the foreseeable future, offering a degree of stability for the sector.
• Government Spending Trends: While defence budgets have faced scrutiny in the past, many nations are now committed to increasing spending to address emerging threats and modernize their military capabilities. This trend is expected to continue, bolstering the financial prospects of defence companies.
• Company Fundamentals: Companies like BAE Systems and Rolls-Royce are characterized by strong management teams, robust balance sheets, and a proven track record of innovation. These factors enhance their ability to navigate challenges and deliver consistent returns.
• Technological Innovation: The defence industry is at the forefront of technological advancements in areas such as artificial intelligence, cybersecurity, and unmanned systems. Companies investing in these technologies are likely to be well-positioned for future growth.
• Ethical Alignment: Investors must honestly assess their own ethical boundaries and determine whether they can reconcile the potential profits with the nature of the industry.

It's crucial to remember that defence stocks are not impervious to broader market fluctuations. A downturn in global markets will inevitably impact the performance of even the most stable companies. Diversification remains a key principle of sound investment strategy.

Expert Perspectives

Ben Yearsley, investment manager at Fairview Investing, observes, "Defence is looking attractive given the geopolitical backdrop. We have exposure to BAE Systems," signaling a proactive approach to capitalizing on the sector's potential.

Ryan Caldwell, head of investment strategy at Momentum Wealth, adds, "Defence is a relatively small position in our portfolios, but we believe it is an attractive sector given the current environment," suggesting a cautious but optimistic outlook.