The geopolitical risk and tensions over energy supplies are reinforcing the themes of energy independence, defense, and sovereignty on a long-term basis.
Structurally Unstable World
The return of Donald Trump to power has accentuated the geopolitical polarization between major blocs, amid increased rivalries for access to natural resources. The situation in the Middle East, already fragile, has further escalated since the October 2023 attacks. More broadly, the proliferation of shocks (geopolitical, climatic) reflects a profound transformation of the world order that favors the emergence of populist leaders and reinforces polarization.
Several investment themes stem from this, which we discuss below:
Energy Independence and the Nuclear Theme
Europe and Asia’s dependence on fossil fuels is a major source of vulnerability, awareness of which has been heightened in recent weeks.
Long hindered by the traumas of Chernobyl and Fukushima, the sector is gradually reclaiming a central role in energy policies, driven by a common imperative: to produce stable, decarbonized, and sovereign energy.
In 2022, the European Union integrated it into its green taxonomy, officially recognizing its contribution to combating climate change. This decision paved the way for a massive resurgence of institutional investments in the sector. France initiated the construction of six new reactors, Japan reopened its plants closed since 2011, and over twenty nations committed to tripling global nuclear capacity by 2050.
Insecurity and the Defense Theme
The war in Ukraine, tensions in the Middle East, and the relative disengagement of the United States enhance the perception of insecurity.
In this context, the arms race is intensifying. The decision by NATO member countries to raise military spending from 2% to 5% of GDP by 2035 embeds this dynamic in the long term. Such a budget trajectory implies not only a modernization of armed forces but also massive investments in infrastructure, cybersecurity, defense industrial capacities, and technological innovation.
Furthermore, this power escalation is no longer limited to Western democracies: all major regions, from Asia to Europe, through the Middle East, are increasing their defense budgets to anticipate a more chaotic geopolitical environment.
A Broader Theme: Sovereignty
Sovereignty encompasses defense and energy independence as mentioned earlier, but also includes digital autonomy and securing supplies of health, food, and raw materials.
This is a topic receiving particular attention in Europe, especially after the structural vulnerabilities revealed during the 2020 health crisis.
One of the most striking diagnoses is the accumulated delay in digital matters. While other regions have heavily invested in artificial intelligence, digital infrastructure, or semiconductor manufacturing, Europe has experienced slower progress, resulting in an innovation deficit and sluggish productivity.
From a financial market perspective, these investment themes are attractive as they are supported by strong economic policies geared towards sustainability. At Kepler Cheuvreux, with the analyst teams’ support, we have identified a set of values to make these themes investable.
