Geopolitical instability in 2026 creates an interesting situation in the stock markets – investors across Europe and Asia are actively shifting their portfolios toward the defense sector. I already noticed this trend in early January when defense company stocks began to show significant growth.

What triggered this movement? First, the situation in Ukraine worsened with a new round of hostilities. But the real shock to the markets came from the US – statements about control over Greenland and interference in Venezuela forced investors to reconsider the reliability of American security as an ally. Anika Gupta from WisdomTree aptly said that this is a reminder of the need to accelerate rearmament in Europe.

European defense companies are showing impressive results. After a 90% increase last year, they continued their rise in January. Goldman Sachs tracks this segment and sees that governments are willing to increase military budgets. Rheinmetall AG became a real star – 150% growth in 2025, followed by even bigger jumps. Vera Diehl from Union Investment also highlights Saab AB and Kongsberg Gruppen ASA as promising options.

It’s fascinating to observe how events unfold in the Asian region. South Korean and Taiwanese players stand out on the map of Asia. Hanwha Aerospace has nearly tripled in value this month after tripling last year, and Hyundai Rotem added 16%. Chae So-yoon from Taurus Asset Management expects significant export contracts for these companies from Iraq and Saudi Arabia. Weichen Chen from JPMorgan Private Bank is optimistic about South Korean suppliers expanding their international sales.

On the Asian map, activity from Japanese Howa Machinery and Taiwanese Aerospace Industrial Development Corp. is also visible. The region is clearly becoming a growth center for defense exports.

In the US, the situation is more complex. American defense stocks grew by 30% last year, but Trump’s plans to limit share buybacks somewhat cooled the enthusiasm. This could even benefit European companies – BAE Systems and Leonardo SpA may appear more attractive to investors due to their exposure to American defense contracts.

Morningstar forecasts that European defense stocks could increase by an average of 20% this year. Of course, there are risks – a diplomatic breakthrough in Ukraine could change the picture, and valuations have already reached historically high levels. But the consensus among analysts remains positive: military budgets are expected to continue growing alongside geopolitical risks. Fabien Benshtrit from BNP Paribas summarizes that the long-term prospects of the sector remain strong as countries prioritize modernizing their defense capabilities. This is clearly not a short-term trend but a serious portfolio reorientation.