Defence, Security and Space
Temps de lecture : min
In preparing our latest Economic and Financial Outlook, we reaffirmed our preference for strategic sectors within our investment framework—an orientation that has become even more relevant in today’s environment of heightened geopolitical tensions.
At the core of these strategic sectors lie defence, security and space‑related activities. Ensuring national defence and security enables States to preserve their freedom of action and autonomy in decision‑making—an essential building block in their pursuit of sovereignty.
Data published by SIPRI in early March confirm this trend. The Stockholm International Peace Research Institute, an independent global authority on military‑expenditure monitoring and arms‑trade analysis, highlights in its latest report the profound transformation underway in international arms flows—a direct consequence of the conflict triggered between Russia and Ukraine in 2022. Europe has now become the world’s largest importing region. Between 2021 and 2025, European arms imports tripled compared with the previous four‑year period (2016–2020). Ukraine and Poland are among the region’s largest importers.
At the same time, several European countries have emerged as major exporters. France has become the world’s second‑largest arms exporter, while Germany and Italy have also strengthened their positions. Paradoxically, however, most of these exports are still destined for regions outside Europe—India being a notable example for France.
Despite efforts to develop a stronger European defence industrial base, the United States still supplies nearly half of the weapons imported into the region.
How can this be explained?
Beyond the political choices made by individual countries, the primary reason lies in the time required for Europe’s defence industrial and technological base to scale up. European Commission programmes such as SAFE (Security Action For Europe) are proving effective: they have been fully subscribed by Member States, and the first projects have already been approved. It is worth recalling that 65% of the value of equipment financed under SAFE must be produced within the EU, and that purchases must be part of joint initiatives between Member States to strengthen cooperation. In Germany, we are also seeing a sharp acceleration in orders in specific segments such as military vehicles and ammunition—an acceleration that materialised as soon as the budget was approved late last year.
The next step is for these orders to begin flowing through the entire production chain, despite bottlenecks we had already identified in our analysis: skilled labour shortages, raw‑material constraints, and the need to expand industrial capacity.
These factors help explain the sector’s mixed performance in Europe in recent months, as well as the volatility observed around earnings releases. Flows into the theme were concentrated in the first half of last year, and valuation multiples now reflect high expectations for activity growth. As with other strategic sectors we prioritise in our investments, navigating this environment requires agility, given that market performance remains highly concentrated.
Written
Julien CHEVALIER
Head of European Equity Management
