Market Commentary by Ben Leyland Winners of European Rearmament: Defence Electronics

The European defence industry is currently experiencing a surge driven by increasing military budgets and heightened security concerns. Geopolitical tensions underscore the growing importance of defence electronics, positioning innovative manufacturers to capitalise on rising investments and shifting procurement behaviours.

European defence stocks have experienced significant growth. While they are no longer inexpensive, valuations still reflect rather conservative assumptions, pricing in only the lower end of a plausible growth spectrum for the next 10 to 15 years. The shift in defence spending—from under 2 percent of GDP before 2020 to 3 percent and beyond—is partially considered by the markets, yet it captures only a fraction of the potential. Additional upside opportunities arise from changes in procurement behaviour and the composition of defence spending.