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New spotlight on defense stocks
Defense stocks have gained significant attention amidst the ongoing war in Ukraine and the deteriorating relationship between the United States and China. In response to these issues, the proposed defense spending in the US is set to increase to $842 billion. This has led many investors to consider investing in high-profile defense companies such as Lockheed Martin, Boeing, and Raytheon.
The defense industry, although associated with war, offers relatively stable returns and is considered a low-risk option for investment portfolios. Defense companies play a crucial role in producing military vehicles, weapons, and defense systems required during conflicts. Additionally, they encompass various other businesses, including data centers, IT networks, warehouses, and administrative functions. As the primary customer for defense companies is the US government, they are often seen as safe investments, especially during uncertain times when compared to riskier stocks like technology.
The recent geopolitical developments, particularly Russia’s offensive against Ukraine and escalating tensions between China and the West, have significantly impacted the defense industry. These conflicts have prompted an increase in defense spending by governments worldwide. In March, the US Department of Defense proposed a budget of $842 billion for 2024, representing a $26 billion increase from the previous year. The rising tensions and the potential for a long-lasting impact have driven the performance of defense stocks.