Si Vis Pacem Para Bellum
Defending the Realm.
On the 23rd of April, during a visit to British troops stationed in Poland as part of a NATO contingent, the UK Prime Minister announced the British government is set to increase defence spending to 2.5% of Gross Domestic Product (GDP) by 2030, compared to the 2.07% of GDP estimated to have been spent on defence in the last financial year.
The pledge of increased spending could set a new benchmark for NATO member states which, in theory, have already committed to spend 2% of their respective GDP on defence. However, some countries are failing to meet even this lower target:
According to the government press release and data, spending will focus on key high-tech capabilities, including air defence missiles and anti-armour munitions, with the defence sector already supporting more than 400,000 jobs, the equivalent of 1 in every 70 UK jobs. The plan also envisions the creation of a Defence Innovation Agency to manage scaled up investment in R&D, in order to consolidate the fragmented defence innovation landscape.
The Ethics of Freedom
Large scale war in Europe for the first time since 1939 after the Russian invasion of Ukraine, turmoil in the Middle East, and geopolitical rivalry vis a vis China, have brought security to the forefront of governments’ concerns in the West. According to the UK Prime Minister “we are living in a much more dangerous world”, and “the mounting threats we face mean we must invest in defence if we are to continue to defend our values, freedoms and prosperity”.
Increased spending on armaments might not align with some investors’ beliefs and values, even if the outlays aim at protecting our democracy and liberties.
In addition, some investors object that, with government budgets increasingly tight, more investments in the defence sector might subtract resources from other areas of public policy.
In this respect, it might be worth remembering Adam Smith’s advice that “defence is much more important than opulence”. As the ancient Roman saying goes, “if you want peace, prepare for war” (si vis pacem para bellum).
Overall, the investors community so far seems to agree on the necessity of increased military spending, as exemplified by the performance of the FTSE 250 and FTSE All World Aerospace and Defence sector indices, which have returned around 50% each in GBP terms since the Russian invasion of Ukraine:
Benefit from an IFA in Birmingham, London, or Warwick.
Stock markets tend to react to real-world conditions, and right now, significant geopolitical uncertainty means uncertain markets. This can make it a nervy time for investors, with some not knowing where to start building a financial portfolio and others unsure whether to stick with their investments.
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Disclaimer
Any research is for information purposes only and does not constitute financial advice. The value of investments and any income from them may go down as well as up, so you may get back less than you invested. Past performance cannot be relied upon as a guide to future performance. KLO Financial Services Ltd are registered in the UK, company number 08711328. We are authorised and regulated by the Financial Conduct Authority, reference 710272. For any information please visit our website www.klofinancialservices.com