Hot Money Monday: Expert says defence stocks should be in every investor’s portfolio

• Europe boosts defence spending, stocks soar
• Global arms race sparks massive investment shift
• Aussie defence stocks set to cash in on boom

Last week, UK Prime Minister Keir Starmer orchestrated a high-stakes political push with his EU counterparts for a “Coalition of the Willing” aimed at securing a ceasefire in Ukraine.

His message, along with those EU leaders, was clear: Europe is ready to increase its commitment to forging peace in the region.

This came amid rising tensions between Ukraine and the US, notably after President Zelensky’s public spat with President Trump at the Oval Office, further complicating the diplomatic landscape.

The anticipated 200 billion Euros increase in military spending is a clear signal that Europe is ready to take responsibility for its own security, reducing reliance on NATO and US military support.

This political manoeuvring had immediate financial impact.

European defence stocks surged. The sector saw a massive rally last Monday, with defence giants like Rheinmetall, BAE Systems, and Saab posting impressive gains.

Investors are clearly betting on Europe’s rearmament cycle gaining serious momentum.

“The events of the last two weeks have turbo-charged this thesis,” JPMorgan Chase’s David Perry wrote.

“We believe that we will now enter a phase where valuation multiples increase, with earnings upgrades following in time.”

A must-have for every investor

And according to Nigel Green, the CEO of deVere Group, investors indeed need to pay attention to this latest development.

In fact, Green argues that every investor should have exposure to defence stocks as the defence spending boom takes hold.

“With European leaders scrambling to reinforce their military capabilities after the US distanced itself from security commitments, defence companies stand to be major beneficiaries,” he explained.

“We believe that this is likely to be the beginning of a fundamental realignment that will shape markets for the foreseeable future.”

Green pointed out that this shift is structural, with countries coming to terms with the reality that the US won’t guarantee their security as it once did.

This will result in significant, long-term increases in defence spending, creating a lucrative opportunity for defence companies.

“The market is already waking up to this reality, and those who act now stand to gain the most.”

‘Long-term megatrend’

But this isn’t just a European story; defence spending is rising globally, with nations everywhere recalibrating to a world of fractured alliances and intensifying rivalries.

From Asia to the Middle East, countries are focusing on security and resilience – and defence stocks are the main beneficiaries.

“We expect this is a long-term megatrend,” Green said.

“The world is entering a new era, one defined by multipolar power struggles, strategic competition and rapid technological advancements in warfare.

“Defence companies are at the forefront of innovation, from cyber capabilities to next-generation weapons systems, artificial intelligence-driven surveillance and hypersonic missiles.”

As governments pour money into modernising military forces and acquiring advanced technology, defence companies are seeing their order books expand and their government contracts grow stronger.

“With global instability unlikely to fade anytime soon, exposure to defence provides an essential hedge.”

This massive surge in defence spending isn’t just confined to traditional military giants, though.

Green believes emerging sectors, like drone warfare, space-based defence systems and cybersecurity, are becoming integral to modern military strategies, creating new opportunities in the sector.

Companies specialising in AI, quantum computing and advanced materials are also set to benefit as R&D spending hits new heights, Green added.

Read later: Defence technology fund fires up amid Trump demands

Aussie defence stocks

And here’s where things get interesting for Aussie investors: the same trends driving European defence stocks are also in play on the ASX.

Australia, too, is investing heavily in defence, with the government increasing defence spending to strengthen its own capabilities.

Defence stocks on the ASX, like those tied to aerospace, cyber, and weapons systems, stand to benefit from this rising tide.

As the global defence industry pivots to meet new demands, Australian defence companies could be well-positioned to capitalise on the growing investment in military technology.

Defence-related ASX stocks