The world is currently going through a phase of geopolitical uncertainty but when has this ever not been the case? Many countries have been swept by a wave of nationalism, which has resulted in the rise of strongman leaders who want to defend their territory and interests aggressively.
But the world is actually more peaceful now compared to 2013 for instance. In 2013, ISIS was blowing up all over the Middle East killing and raping. ISIS was also blowing up America and shooting Americans every other month and running over Europeans – these attacks have tapered off because ISIS has been dealt with more effectively because of the new leadership in America.
But currently, there has been an increase in defense spending across the globe. What this means to you as an investor is that you should start looking at defense stocks.
The Situation in the US
Republican Presidents are usually in favor of increased defense spending and Trump is no exception. The military budget of the United States currently stands at $717 billion and is expected to increase in the coming years.
Reports say that President Trump has decided to increase the military budget to $750 billion in 2020 and has asked Defense Secretary Jim Mattis to prepare and submit a proposal for the same.
The President is also said to be considering the idea of deploying more troops in Afghanistan. If the plan materializes, General Dynamics, which provides voice and data services to the US army through its Warfighter Information Network – Tactical (WIN-T), could be one of the biggest beneficiaries. So, it is a stock you should keep a close eye on.
The Situation in the Middle East
In the Middle East, Saudi Arabia and Iran are at loggerheads with each other, as a result of which defense spending continues to increase in the region. So, companies like BAE Systems, which have a strong presence in the region, are expected to perform well in the coming days.
The rise of China has made its neighbors nervous – rightly so given the fact that the country has border disputes with all its neighboring countries – including Japan and South Korea.
India is rapidly modernizing and expanding its military capabilities, not only due to the fact that it shares a border with China, but also due to the belligerence of its other neighbor – Pakistan.
Pakistan, on the other hand, is constantly expanding its military capabilities just so it can match up with its arch rival India.
Countries like Japan (somewhat just mentioned) and Australia are also bolstering their capabilities in the wake of China’s rapid growth.
All these countries mostly depend on the US for their defense purchases. So, companies like Lockheed Martin, General Dynamics, and Northrop Grumman could emerge as the winners in the current scenario.
Why US Based Defense Companies Are Likely to Perform Better
US based defense firms offer a much broader range of products compared to firms in other parts of the world. They also enjoy a larger market share, which gives them a definite edge over their competitors. This is something you should keep in mind while investing in defense stocks.
We currently live in an era of renewed arms race – China and Russia are trying to expand their military capabilities and project their influence at a global level while the US is trying to maintain its position as the world’s biggest superpower by outspending and out innovating all its competitors.
Apart from this, there are several regional rivals that are trying to outspend each other and bolster their military capacity.
Based on the current geopolitical situation, it is safe to assume that defense spending is likely to increase across the globe in the coming days. If you are a shrewd investor, you can definitely benefit from it by picking the right defense stocks to invest in.
Even some of the irrational European countries realize they need to spend more on their military because of Russia’s tactics and because President Trump is telling them, based on common sense, that they should not rely so much on America for protection. That is just a foolhardy way to go about things.