An Australian ETF provider predicts that government spending on defense in the United States, the world’s largest defense spender, is likely to remain high, attracting increased investment in AI technologies and cyber defense.
He added that Kamala Harris and Donald Trump, whoever wins this week’s US election, will face similar challenges on defense spending.
“They might treat them in different ways depending on how they are treated in the United States, but in any case, both candidates, Harris and Trump, will have to commit to continued defense spending, given the geopolitical outlook current trends in the global economy,” he said. .
In 2023, the United States accounted for nearly 40% of global defense spending, or $916 billion. – its highest level of defense spending since World War II.
The world’s largest economy was followed by China, which was the second largest military spender, at $296 billion, and Russia at $109 billion.
“Unfortunately, countries around the world will continue to invest in defense and we don’t really anticipate any change in the short term,” he said.
Trump vs. Harris
Although neither candidate is expected to cut the defense budget, they could take “slightly different” approaches, according to Hannah, with Harris likely to be more predictable in her actions than Trump.
“We already know what Harris will do since the Democrats have been in power since the start of some conflicts. And I think the way they’re handling things is obviously consistent with the broader policy of the last three years and that’s going to continue,” he said.
“From Trump’s point of view, it is difficult to [predict] exactly what he’ll do in terms of underlying defense, but needless to say you won’t see him go back [the defence spending].”
Hannah pointed out that during his previous term, Trump was adamant that European NATO members should meet the agreed threshold of 2% of their GDP on defense spending, a requirement that many now adhere to.
In 2018, during a visit to the White House, NATO Secretary General Jens Stoltenberg praised then-President Trump for his leadership on this issue.
In fact, as of July, NATO reports suggest that more than two-thirds of its allies have met their commitment to the 2% of GDP defense spending rule, with some member states even exceeding this threshold.
“From this point of view, Trump’s policy has already had an impact within NATO, obviously [it is now] motivated by the war in Ukraine, but it goes without saying that Trump wants to see government spending in this area,” Hannah added.
“From that perspective, the way he does it might be different, but defense spending will likely remain unchanged.”
Opportunities in the defense sector
Hannah believes that increased military spending will bring greater research and funding certainty across various sub-industries within the defense sector.
This includes aerospace, research and consulting services, application software, electronic equipment, instruments, unmanned vehicles, communications systems (such as satellites), critical cybersecurity, security software. training simulation, digital forensics, detection devices and biometric identification.
Deputy Director VanEck also noted that the defense industry has historically been at the forefront of technological innovation and development, and many companies currently involved in this area are more technology-focused, so AI within defense is another growing area.
“The new world is more “technological” – cybersecurity, cyberwarfare, unmanned drone security – and a lot of that is technology-based. And the technology relies on the most advanced computer chips, as well as more advanced algorithms,” Hannah said.
“[These companies] are at the cutting edge, they innovate and they are companies that undoubtedly offer a material advantage.
VanEck recently launched its Global Defense ETF (DFND), Australia’s first defense-focused exchange-traded fund, on the ASX.
“Since the inception of DFND, its return has been 10.55 percent until October 24, 2024. It has traded daily and currently has $12.2 million in assets and has averaged approximately $371,000 per day since its inception until yesterday,” he said.
Australia currently has three defense ETFs, with Global weeks later. .
A recent report from the Stockholm International Peace Research Institute (SIPRI) indicates that global military spending increased by 7 percent to reach $2.43 trillion in 2023, the largest annual increase since 2009, with with projections suggesting they could reach $3.1 trillion by 2030.
“We are now seeing a resumption of defense spending for the benefit of arms manufacturers, many of which are listed on stock markets. At the same time, investors are looking for a hedge against escalating military conflicts that could impact other investments,” Oliver said.
He warned, however, that while the launch of defense-focused ETFs “makes sense” and is “a sign of the times,” investors “just need to be wary that, like the first Cold War, it will grow and decay over time. , leading to great volatility in defense stocks.”
“They should be wary of their purchases after already experiencing a surge and being overvalued and overloved.”
