Defence optimism and a new format

Defence has been back in the headlines this week as presidential candidate Donald Trump has insisted that Taiwan should pay the US for protection.

It’s a story which impacts the chip-making sector as much as it does defence companies. The US has long acted as the de facto guarantor of Taiwan’s security, as the island nation has a raft of impressive semiconductor companies that the US doesn’t want to see fall to China.

The entire US semiconductor market stumbled following Trump’s declaration.

The defence sector meanwhile continues to bask in the grim glory of an increasingly unstable world. Taiwan is already one of the biggest markets for international defence companies. Heightened security concerns caused by a Trump government aren’t going to detract from the possible business case there.

It’s been a funny few years for defence investors.

Before Covid, these were seen as sin stocks - companies that shouldn’t be profiting from warfare. In 2019, BAE Systems' (LON:BA.) shares crashed after the murder of journalist Jamal Khashoggi, amid fears of a global clampdown on arms dealing with Saudi Arabia.

Fast forward five years and defence companies are being seen as the protectors rather than the big bad war machines. Their share prices have...