European equities - European strategic autonomy: A long-term investment opportunity

Europe is deepening its quest for strategic autonomy. What began as a post-pandemic policy slogan has evolved into a financial reality, with tangible investment implications – Europe now allocates billions annually to defence, industrial resilience, and key technology sectors.

Once an afterthought, now a priority, the money being put into European defence has significantly increased since 2022, amid the Russia/Ukraine conflict and more recently because of US President Donald Trump’s pressure on NATO members¹. 
But this is only the beginning. At the June 2025 NATO Summit in The Hague, allies made a commitment to investing 3.5% of GDP annually on core defence requirements and 1.5% of GDP on defence- and security-related spending by 2035².

These ambitious targets were met with some prudence by the market, with some countries more reluctant than others to spend so much while already struggling with high public spending. However, the path is clear: several plans exist to help with this target, notably the European Union’s (EU) €800bn ReArm Europe Plan/Readiness 2030³. Security spending will rise for years to come, which could create potential new opportunities for investors. 

Investable market

The total addressable market for European investors should grow 29% per year until 2030, according to the European Defence Agency⁴. Its study uses a hypothesis of 3% of GDP spending on defence by 2030 (versus the 3.5% agreed by NATO members and 2% previously), taking progressively into account the 65% target of components from European companies⁵, adjusting slightly higher also the proportion of spending on equipment versus staff.

The sector has significantly re-rated since 2022, but its valuation is still below that of US peers and its growth is well above that of the other European sectors:

Exhibit 1: Valuation ratios for selected equity indices

NTM: Next Twelve Months, PEG: Price Earnings Growth Ratio, P/E: Price-to-Earnings Ratio, FCF: Free Cash Flow, P/Sales: Price to Sales. Data as at 21 October 2025. Source: FactSet

When looking at the subsector’s valuation ratio, accounting for its growth, the sector is still cheaper than the rest of the market.

In the short term, investors should be prepared for potential volatility, due to contradictory news on the probability of a ceasefire between Ukraine and Russia. But recent financial reports and order books have reassured the market; for example, TKMS (the recent marine spin-off from ThyssenKrupp) boasts backlogs extending to 2040⁶.

At the same time, the reorganisation of the European defence landscape is underway, evidenced by several changes: TKMS’ spin-off, Rheinmetall’s acquisition of Naval Vessels Lürssen, the Bromo satellite project combining the space businesses of Airbus, Thales and Leonardo – which all create potential additional opportunities to invest in the sector.

Industry, IT, utilities and basic resources: The long way to sovereignty

The industry, information technology, utilities and basic resources sectors are pillars to address vulnerabilities in supply chains, notably in chips, energy and critical raw materials essential for the green and digital transitions. Several policies and plans exist to support this:

• The EU’s REPowerEU programme which aims to divest from Russian energy imports before 2030⁷: supported by €300bn of funding, notably through the Recovery and Resilience Facility⁸ 
• Approximately €100bn to be mobilised by 2030 to support decarbonation of energy -intensive industries⁹ 
• Germany’s "Schuldenbremse" (debt brake) reform, approved by parliament in March 2025, enabling the creation of a special €500bn fund to be deployed over several years (€83bn for 2026) dedicated to investments in infrastructure (transportation, energy, digital networks) and the green transition¹⁰ 
• The EU’s Critical Raw Materials Act which establishes benchmarks for EU extraction (10%), processing (40%), and recycling (25%) by 2030. It does not have a dedicated budget but aims to soften the administrative burden and timeline for permits¹¹. This initiative becomes more and more important with the Chinese government restricting rare earth material exports
• At the European level, the Chips Act is mobilising over €43bn in public-private commitments through 2030¹² 

On an even longer-term note, the Multiannual Financial Framework proposed by the European Commission in July 2025, covering 2028–2034, provides for a budget of €2trn aimed at strengthening the EU’s strategic autonomy and resilience. This is equivalent to 1.26% of EU GDP over the seven-year period, doubling the €1trn of the previous 2021-2027 budget¹³. The plan establishes a European Competitiveness Fund of €409bn, intended to support strategic technologies in clean energy, digital transition, biotechnology, and defence.

In addition, €175bn is allocated to Horizon Europe, the EU’s flagship research programme, which aims to support innovation from conception to scale-up. This additional spending will likely open up new investment opportunities across these industries and potentially beyond.

A long-term investment trend

Europe’s strategic autonomy could solidify by 2030, with defence spending representing a significant 3.5% of the region’s GDP, not even taking into account the indirect 1.5% of GDP spending from the NATO commitment. Even if the full NATO engagement is not met, we believe this is a structural trend that is here to stay. Defence clearly dominates Europe’s balance sheet, while industrial and technological resilience remain smaller but fast-growing components as well. Sustained efforts are essential for a robust Europe, improving visibility for European companies, while creating potential long-term opportunities for investors.