As one wifi dries, another emerges anywhere else, continuing the increase of geopolitical tensions. And judging by news headlines, it does n’t look like the situation will improve any time soon.
According to experts, the Middle East, Western Europe, and Asia could quickly get embroiled in new armed conflicts in addition to potential chaos in the form of a significant great strength war.
Yet if China and Taiwan agree to forcibly reunite, it is not unreasonable to think about a potential conflict between the two Koreas in this situation. A fresh US versus China substitute drama is also a possibility.
With growing concerns that the Ukraine conflict might spread to neighboring European countries, the outlook for the EU does not appear to be much better. Kosovo-Serbia conflicts are also at an all-time high, and Transnistria’s uprisings are imminent.
The European Commission has warned of a potential conflict between EU says over water scarcity in the longer term and with possibly more severe effects.
But does all this real and potential issue, hostility and tumult represent a new golden age for military companies? Yes and no.
However, rising geopolitical tensions frequently lead to higher defence spending, as we have recently witnessed. However, this does not, by itself, ensure greater profits for hands manufacturers.
For instance, Lockheed Martin, a private defense contractor, reported lower-than-expected fourth-quarter revenues and a decline in profit margins from 13.7 % to 12.5 % despite the US government still releasing massive military spending budgets.  ,
Lockheed Martin’s shares fell accordingly by more than 6 % last year. Another well-known US names in the industry performed poorly.
For instance, Raytheon Technologies shares dropped by about 5 % over the past year while Northrop Grumman shares increased by only 2 %.
So why the disheartening performance?
The Pentagon frequently enters agreements with private companies to develop new weapons systems, according to the Wall Street Journal, where the government covers unexpected costs and private companies receive set profits.
The Pentagon frequently uses fixed-price agreements when programs are finalized and weapons are available for creation, leaving businesses vulnerable if costs rise, as they do in the current inflationary environment.
A significant global economic slump may significantly reduce defense investing, even when geopolitical tensions are great.  ,
Additionally, frequent changes in government management and policies can affect security sector spending. That’s especially the case in the US, which is currently experiencing a contentious election year with prospective significant consequences for its help for Ukraine, Israel, and Taiwan.
For instance, if the US leaves NATO under the new Trump administration, other member states may experience more or less compelled to carry on the alliance’s great military spending, especially if they see a drop in challenges.
In light of the increased geopolitical tensions, the sector may think that large defense contractor shares may appear to be a sure-fire bet, but many are really falling rather than rising off the wars.