Recent events like Russia’s invasion of Ukraine and Hamas’ attacks on Israel signal more than just geopolitical tensions. According to Jennifer Welch, BE’s Chief Geoeconomics Analyst, these incidents mark the end of an era,  saying that the “post-Cold War ‘peace dividend’ is coming to an end.”

The world is growing increasingly chaotic — with 200 active conflicts since 2018 (up from 125 in the five years prior.) And the world’s next big disturbance isn’t a matter of “if” but “when.”” Preparing for the unexpected could be expensive…

$10T war fund: Global defense spending hit a record $2.2T last year — and is expected to rise further. Bloomberg Economics estimates that Western countries, including the US and Group of Seven (G7) nations, may need over $10T in additional military funding over the next decade to modernize their forces.

• Defense officials say NATO members may need to double their defense spending from 2% to 4% of GDP, echoing Cold War-era levels (BBG).
• The spending would aim to catch up with Russia, which now spends 4.4% of its GDP on defense — and China, which will raise defense spending by 7.2% this year.

Following the fear

Despite boasting the largest military budget globally, the US plans only a t 1% increase in defense spending this year. Unsurprisingly, it’s Europe that has begun to embrace defense spending — driven by its proximity to conflicts like those in Ukraine and Israel.

• Since Jan. 2022, European defense spending has surged to $388B, boosting the order backlogs of major defense contractors to over $300B — helping six of the region’s seven largest defense contractors double.
• As a result, RheinmetallRNMBY
  , SaabSAABY
  , LeonardoFINMY
  , Rolls-RoyceRYCEY
  , Kongsberg GruppenKBGGY
  , and BAE SystemsBAESY
  have become the world’s best-performing defense stocks.

Meanwhile, in the US: Domestic defense stocks have lagged behind the market as their individual earnings disappoint. Instead, investors are more optimistic about their “commercial aerospace and business travel” segments, according to Barron’s. And after splitting its energy and aerospace businesses, analysts are getting bullish on the new GE AeroGE

.

Read: Learn how GE is revamping its future with strategic spin-offs.