Portfolio Manager, Rand Swiss

Viv is a senior analyst and investment specialist, focusing on international and local markets. He frequently appears in the media, contributing to channels such as: SABC, CNBC, SAFM, 702 and ETV. He is also a regular guest lecturer at a number of prominent business schools and advanced education programmes, and previously lectured at tertiary institutions such as UKZN and DUT.

You can follow Viv on YouTube at @RandSwiss for regular market updates and AI insights.

Europe’s defence rebuild: A structural shift in capital allocation

European defence spending is entering a new phase. What was previously a gradual increase toward NATO’s 2% of GDP target has shifted materially higher, with several member states now committing to levels between 3.5% and 5% of GDP.

When fiscal policy adjusts at this scale, capital allocation follows.

This shift is not simply a reaction to near-term geopolitical tensions. It reflects a broader reassessment of Europe’s strategic positioning and its long-term reliance on the United States. The result is a funded, policy-backed investment cycle that is likely to extend well into the next decade.

For investors, the question is no longer whether defence spending will increase. It is how that spending translates into earnings visibility, industrial expansion, and long-term return potential.

Strategic autonomy and the €800-billion reallocation

Since 2025, the relationship between the United States and its European allies has become more transactional. Calls from the current U.S. administration for materially higher defence contributions have accelerated policy decisions across the continent.

European governments are responding not only by increasing defence budgets, but by prioritising domestic industrial capacity. The “Strategic Autonomy” agenda is focused on reducing reliance on external suppliers and strengthening European defence manufacturing.

Estimates suggest that as much as €800 billion could be directed toward defence and related infrastructure by 2030. Importantly, a growing portion of this capital is expected to remain within European companies rather than flowing to U.S.-based defence contractors.

This represents a structural fiscal reallocation, not a cyclical stimulus measure.

Core European defence equities

• Rheinmetall AG (Xetra: RHM) has expanded ammunition production capacity materially in recent years. The company currently carries a substantial order backlog, providing revenue visibility over an extended horizon. Valuation levels reflect this growth trajectory.
• BAE Systems plc (LSE: BA) offers diversified exposure across the UK and U.S. markets, with a significant multi-year order backlog. It is generally regarded as one of the more stable cash flow generators within the sector.
• Thales Group (Euronext Paris: HO) is positioned in higher-margin segments such as electronic warfare, advanced sensors, and defence systems integration.
• Saab AB (Nasdaq Stockholm: SAAB B) has strong exposure to advanced aerospace and defence technologies, including aircraft systems and surveillance platforms.
• Leonardo S.p.A. (Borsa Italiana: LDO) provides exposure to helicopters, electronics, and space-related initiatives. It is often viewed as offering relatively more moderate valuation metrics compared to some peers.

ETF exposure

• iShares Europe Defence UCITS ETF (Ticker: DFEU): This ETF provides targeted exposure to European defence companies and aligns closely with the strategic autonomy theme.
• VanEck Defence UCITS ETF (Ticker: DFNS): This fund offers broader global exposure, including European companies alongside selected international defence firms.

A structural rather than tactical theme

The post-Cold War period was characterised by declining defence expenditure as a share of GDP. That trend has reversed.

The current environment reflects a multi-year reorientation of fiscal priorities, industrial capacity, and supply chain resilience. While defence equities have already re-rated in response to higher spending expectations, earnings visibility remains supported by long-dated order books and government-backed procurement programmes.

As with any thematic allocation, valuation discipline and portfolio sizing are critical. Defence should be considered within the broader context of global equity exposure, risk tolerance, and currency positioning.

Accessing European markets

Rand Swiss clients can access European equities and ETFs through Swissquote, a Swiss-regulated online bank providing multi-currency custody and access to major global exchanges.

Clients who would like to open a Swissquote account or discuss portfolio positioning and sector exposure are welcome to contact our desk directly at [email protected].