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Escalation in the Middle East Changes the Risk Landscape
The past month has been marked by a clear rise in the global geopolitical risk level. The long-latent confrontation between Iran and the West has developed into a more direct military confrontation between Iran and the West. The Global Security Fund returned 2.88 % for the month of February.
The military operations carried out against targets in Iran represent one of the most confrontations between Western powers and Tehran in several decades. Although the long-term political trajectory of the region remains difficult to predict, recent developments have already begun to reflect in global capital markets through a higher geopolitical risk premium.
For several decades, Iran has positioned itself in strategic opposition to the Western world through its regional network of allied actors, the development of advanced missile programs, and a confrontational stance toward U.S. and allied military presence in the Middle East. At the same time, the country’s relations with Russia and China have deepened both economically and militarily, further strengthening its role in the broader geopolitical power dynamic.
The most direct macroeconomic impact of this conflict is transmitted through energy markets. Iran’s proximity to the Strait of Hormuz means that even limited security risks can quickly affect global oil prices, which in turn may complicate central banks’ balancing act between inflation and economic growth.
Geopolitical tensions also tend to increase volatility across financial markets more broadly. Risk premiums rise, capital flows toward safer assets, and uncertainty surrounding global growth prospects increases. At the same time, there is a risk that the conflict could gradually take on a broader international dimension. In recent days, for example, NATO defense systems have been used to intercept Iranian missiles near Turkish airspace, illustrating how the conflict already touches the alliance’s geographical security perimeter.
Should the conflict escalate further, both NATO countries and the European Union could become more directly involved, whether through military support, protection of regional infrastructure, or through the potential impact on European bases and installations. Such a development would mean that the conflict is no longer solely a regional issue but rather a broader security matter with direct implications for Europe and European companies.
Recent developments also illustrate a broader structural shift in the global security environment. The current escalation surrounding Iran should therefore not be viewed merely as short-term geopolitical news flow. Rather, it indicates that the global security landscape continues to evolve in a direction where geopolitics plays an increasingly important role for both economic development and capital markets.
For investors, this has several potential consequences:
• a more persistent geopolitical risk premium in global asset prices
• increased volatility in energy markets
• a continued structural focus on defense- and security-related investments
As security policy once again takes on a central role in the global economy, the defense sector is becoming an increasingly important component of the broader investment landscape.
| February 2026 – Highest development | February 2026 – Lowest development | ||
| OKI ELECTRIC | 58% | AST SPACEMOBILE | -29% |
| KAWASAKI HEAVY IND. | 42% | OHB | -27% |
| ACSL | 36% | AUSTRALIAN | -26% |
| CLAVISTER | 27% | KENCOA AEROSPACE | -25% |
| HOWMET AEROSPACE | 26% | PALO ALTO | -16% |
Company-specific news
Several companies in the portfolio reported quarterly earnings during February. Overall, the majority of these reports were well received by the market, as reflected in share price performance. The sector's underlying development remains strong, characterized by solid order intake, expanding order books, and continued high demand for defense-related systems. This trend has been visible broadly across the sector in both Europe and the United States, as well as globally.
Saab reported a strong fourth quarter, with order intake of approximately SEK 100 billion, significantly above market expectations. Revenue amounted to roughly SEK 27.7 billion, representing strong organic growth, while the adjusted EBIT margin reached 10.6%. For the full year 2025, order intake totaled approximately SEK 168.5 billion, further strengthening the company’s already substantial order backlog and providing good visibility for continued growth in the coming years.
Kongsberg Gruppen also reported a strong quarter driven primarily by its defence division Kongsberg Defence & Aerospace (KDA). Q4 EBITDA came in 16% above consensus, supported by stronger-than-expected sales and EBITDA margins of 21.4%, roughly 4 percentage points above expectations. Order intake remained robust with group orders 4% above consensus, driven by KDA where orders were 13% above expectations. The company’s order backlog continues to expand rapidly, with backlog scheduled for execution reaching around NOK 30 billion for 2027, representing 57% year-on-year growth.
As the conflict in the Middle East escalated, global defense stocks reacted positively as investors began pricing in potentially higher demand for military equipment and air defense systems. Our portfolio generally experienced positive share price reactions in this environment. One company that stood out in particular was Hanwha Aerospace, whose share price increased by more than 30% in early March. The rally was driven by expectations of rising global demand for air defense systems and missile technology, particularly in the Middle East where several countries are already significant buyers of South Korean defense systems. European and U.S. defense companies also performed strongly during the period, while broader equity markets in some regions came under pressure due to increased geopolitical uncertainty.
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