Defence stocks will continue to be a winning theme Defence stocks will continue to be a winning theme Defence stocks will continue to be a winning theme

Defence stocks will continue to be a winning theme

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  European defence companies continue to see strong orders intake as Europe is significantly increasing its defence spending in a response to the war in Ukraine. We take a look at our defence theme basket which is one of the best performing baskets over the past year and especially driven by European defence stocks such as Saab, Rheinmetall, Hensoldt, Kongsberg Gruppen, and Leonardo.

Key points in this equity note:

  • Defence theme basket was best performing theme basket last week declining only 0.9% while most growth themes saw declines in the range -2% to -8%.

  • Central and western European countries’ defence spending increased to $345bn in 2022 which is on par with spending in 1989 in real terms.

  • European defence companies are the big winners since the Ukraine war broke out last year with the five winner stocks being Saab, Rheinmetall, Hensoldt, Saab, and Kongsberg Gruppen.

Multipolar world will continue to underpin growth in defence stocks

Last week was tough for the overall equity market if one looks below the very top of mega cap stocks. Most equity theme baskets were down between 2.2% and 8.5%, but one equity theme outside mega caps held up as the best performing theme basket and that was the defence basket declining only 0.9% last week. The performance highlights that this theme continues to be repriced relative to the rest of the equity market as investors are realizing that defence is becoming a long-term growth theme.

Siemens Energy | Source: Saxo

The war in Ukraine has fundamentally changed the geopolitical game and has accelerated what we call the fragmentation game which is essentially a geopolitical dynamic that breaks up and realign global supply chains to account for what will become a multipolar world over time. The US and China were already engaged in the fragmentation game since the early days of the Trump administration with Europe reluctant to get involved because of its deep trading relationships with China and especially Germany’s dependence on selling machines to China and getting cheap energy from Russia. But the war in Ukraine and Russia’s attempt to weaken Europe through its energy exports pulled Europe into the fragmentation game.

Europe’s defence budgets are now increasing at a rapid pace and will continue growing over 10% per year over the next five years. Central and western European states spent $345bn in 2022, which in real terms surpasses the spending in 1989, the last year of the cold war. The new spending level takes Central and western European countries almost on par with military spending in East Asia highlighting that Europe is still a formidable power.

Europe is keen to avoid the previous dependence on Russia and thus several key industries are now viewed as national security interests getting subsidies from European governments and regulation will be put in place to reshore various manufacturing to the European continent or to countries that are deemed to either neutral or aligned with Europe inside the fragmentation game. Global venture capital flows were already flowing towards defence start-ups in the years post Trump’s victory in 2016 suggesting capital markets were already aware of the new dynamics. The war in Ukraine turbo-charged investments in defence technology and 2023 could become a new record year.

Source: Financial Times

Europe first principle deliver strong results for European defence companies

Since the war in Ukraine began in February 2022, the median return across the stocks in our defence basket has been 35% with the top five winners being all European defence companies such as Saab (+172%), Rheinmetall (+159%), Hensoldt (+125%), Kongsberg Gruppen (+76%), and Leonardo (+63%). While US defence companies will also benefit from the increased spending the priority in Europe is to spend on European defence companies in order to build up a stronger defence industry in Europe. European defence companies were also priced for zero growth and terrible operating margins, so the high returns also reflect a significant repricing of the future.

Kongsberg Gruppen saw strong Q1 figures in its Defence & Aerospace division driven by order intake from its missile division and management has indicated that the news US defence budget will insignificantly increase spending on the Naval Strike Missile programme which will benefit Kongsberg Gruppen.

The Sweden-based defence and aerospace company Saab reported in its Q1 results a 266% order increase in its Dynamics division which includes areas such as ground combat, missile systems, underwater systems, and training solutions.

The investments cycle that has started in Europe due to the war in Ukraine should not be underestimated and it is potentially the biggest driver of Germany changing its perception of the world and its role as Europe’s largest economy. An increased focus on military spending is what could pull Germany for good out of its austerity thinking and into spending mode. The galloping energy crisis is the next catalyst for Germany to spend even more on infrastructure.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.