Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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Europe’s defence pivot: from speeches to signed orders
Ruben Dalfovo
Investment Strategist
Key takeaways
- Budgets are rising and broadening across Europe’s defence sector.
- Defence needs fast procurement; spillover benefits support infrastructure upgrades and energy security.
- Policy tailwinds cut red tape and co-fund capacity—execution and valuation are the risks.
Set-up: why more defence now
Rhetoric and risk shifted. President Trump moved to a clearer pro-Ukraine stance while pressing Europe to spend more and curb Russian-oil ties. Market reads it as support with strings attached. On 25 September 2025, Denmark briefly shut Aalborg and Billund and raised alerts at other sites after unauthorised drones entered airport and air-base airspace.
That brings the risk home and exposes gaps in detection, jamming, and short-range point defence around civilian assets. In turn, budgets are moving: all NATO members are projected to meet the 2% of GDP target in 2025 for the first time, with a longer-run ambition of 3.5% by 2035. This turn promises into purchase orders.
The market is widening. Europe is fast-tracking joint air-defence buys through the European Sky Shield Initiative (ESSI). Brussels proposed the European Defence Industrial Programme (EDIP) to co-fund capacity and simplify rules. New listings and restructurings add catalysts: the European tankmaker KNDS is preparing for a potential IPO, and Thyssenkrupp shareholders approved spinning off TKMS, its marine division.
The pillars: a quick map for investors
These are the four spend lanes driving orders:
1) Munitions and air defence
Stockpiles must be rebuilt and sustained. The bottlenecks are basic: ammunition, propellants, and fuses. Air defence now jumps the queue—from shoulder-launched missiles (MANPADS) to long-range batteries like Patriot-class systems. Germany’s push to source more systems and the European Sky Shield Initiative point to joint buying and shared training—faster scale, tighter timelines.
2) Drones, sensors, and C-UAS
Drones are cheap and everywhere. Counter-UAS (C-UAS) layers radar, radio-frequency sensing, electronic attack, and interceptors. Civil assets—airports, ports, grids—need the same stack. Expect steady demand for sensors, jammers, and short-range air defence.
3) Secure logistics and hardening
Europe is reinforcing rails, bridges, depots, power gear, and command networks so forces and supplies keep flowing under stress. Budgets increasingly count dual-use infrastructure and cyber-physical resilience as defence outlays. That widens the investable universe beyond defence pure plays to key suppliers and integrators.
4) Policy and procurement
Policy is a key feature. The European Defence Industrial Programme (EDIP) aims to co-fund capacity, ease permits, and give multi-year demand signals. National frameworks and NATO commitments then convert signals into contracts and down-payments. Investors should track the hand-off from policy text to signed orders.
Who gives you exposure
This list is illustrative, not exhaustive. For more ideas, see Saxo’s Defence theme.
Portfolio role and risks
Defence fits as a growth sleeve, not a quick trade. Think of it as a small part of a portfolio that aims for steady compounding from policy-backed demand and long order books. In many cases, it can also work as a diversifier because its drivers are different from consumer tech or retail. Here, budgets, tenders, and deliveries matter more than ad clicks or holiday spending.
Risks are clear and practical. Execution risk: factories must scale, source parts, and deliver on time; misses can hit margins and trust. Political risk: elections, coalitions, export rules, or faster-than-expected peace can slow orders. Programme risk: timelines slip, specs change, or buyers reprioritise. Procurement is lumpy, so quarterly numbers can zig-zag.
Valuation check: the revival is well understood. Several shares already price faster growth and long backlogs. That is a risk. A simple way to manage it is to phase entries, keep position sizes sensible, and track company guidance against real capacity and delivery milestones.
Investor playbook
Build a watchlist across the four pillars: munitions/air defence, drones/C-UAS, logistics hardening, and policy winners. Our Defence theme includes an illustrative shortlist across these pillars (for inspiration only).
Follow policy turning into orders: track EDIP progress, ESSI joint buys, and national contracts/down-payments.
Monitor guidance vs capacity: prefer visible delivery ramps and funded backlogs vs. headlines or promises.
Phase entries and keep sizes modest: valuation already prices a revival in many shares.
Watch corporate actions and market reactions: KNDS IPO path and TKMS spin-off execution.
Europe’s defence story is shifting from headlines to orders
Budgets are rising, rules are loosening, and drones are forcing rapid upgrades across sensors and air defence. The investable field expands, but the bar for execution and pricing rises. The investor edge is in tracking where policy turns into funded orders and where suppliers can scale without crushing margins.
The near-term path hinges on contract cadence and capacity. What to watch next: NATO Defence Ministers’ meeting in Brussels on 15 October 2025, and EU decisions on using frozen Russian assets for Ukraine support at coming Copenhagen-led gatherings. Defence has left the opinion pages and entered the order book—track deliveries, not speeches.
This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options.
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