Why Defence Stocks May Be Great Long Term Investments

A Combination of Geopolitics and Technology To Drive GrowthHeadlines attest to the deteriorating global geopolitical environment. The United States has adopted a protectionist trading policy, Brexit is symptomatic of a host of problems facing the European Union, the North Korea nuclear issue remains unresolved, Russia continues to adopt an adversarial stance versus the West, and the United States and China are engaged in a contest for global influence in the 21st century. These are but a sample of the macro issues that will challenge investors in the coming years. However, turbulent times also produce opportunities. The defence sector is one such opportunity as it is well-positioned to benefit from two converging influences.The anxiety and uncertainty produced by the current geopolitical climate have raised the risk of military conflict. The lack of clear leadership in the West has produced a multi-polar global order that has increased the number of potential theatres of conflict. China and the United States regularly sabre rattle in the South China Sea, while worries grow over Chinese military action against Taiwan. Iran and Saudi Arabia vie for influence in the Middle East. The lack of strong leadership in the West suggests a weakened Western coalition to adversaries. These are the major, though by no means only, areas of concern.These geopolitical issues are driving military spending higher. The Trump administration authorized the biggest defence budget in American history, worth some U.S. $700 billion and this trend is expected to be maintained by the Biden administration. The United States accounts for more than a third of world spending on military equipment. China has also been aggressive in building its military capability and is now the second-largest purchaser of weapon systems. Saudi Arabia has become a major buyer of military equipment as well and is now in third place globally.…