MW Whether Trump's foreign policy takes off or crashes, this analyst sees two ways to profit

By Steve Goldstein

President Donald Trump's foreign policy is a lot less unpredictable than sometimes shocking headlines would suggest, this veteran analyst says.

Christopher Granville has 25 years covering the political economy of Russia and other former Soviet Union countries, and now is managing director for global political research at TS Lombard.

"Predicting what follows from the geopolitical earthquakes of Trump's first month back is less hard than his bluster may make it seem," says Granville. "On inspection, he does what he previously said he was going to do. Underpinning that surface consistency, his 'America First' foreign policy framework is sufficiently coherent to allow plausible forecasting."

Trump for decades has sought to get along better with Russia. "Since Russia has the upper hand, the only path to a quick settlement lies in conceding to Russia's core demands - as announced by Trump's Defense Secretary Pete Hegseth at a meeting with his NATO counterparts in Germany on Feb. 13," said Granville.

"The alternative path would have been to continue trying to wear down Russia with economic sanctions and military attrition fuelled by U.S. weaponry in the hope that the desired effect of exhaustion and collapse materialized in Russia before Ukraine went the same way. Whatever the merits of that approach, the longer timescale involved would not fit Trump's stated determination to end the war without delay."

From an investment perspective, European aerospace and defense stocks should thrive in such an environment, regardless of whether Trump foreign policy succeeds.

"Exposure to this sector captures the unusual and paradoxical character of the peace dividend from a ceasefire in Ukraine. This is a warlike peace dividend in the sense that it will stem from the accelerated growth of European defense procurement in response to the reality of Russia being left with the upper hand by an America First Washington that is handing on the residual security threat for Europe to deal with. If, as is all too plausible, peace efforts in Ukraine collapse, this increased 'war dividend' will kick in no less strongly if not more so in the short run as European governments scramble to keep the Ukrainian army in the field," says Granville.

This was demonstrated on Tuesday with news that Germany was seeking a boost to defense spending in its lame-duck parliamentary session as U.K. Prime Minister Keir Starmer pledged to increase defense spending relative to GDP.

If all NATO countries took their defense spending to 5% of GDP, the additional procurement would be an estimated $358 billion. While it's a high-water mark, currently that is over half the sector's present revenue.

The analyst says the question is whether investors should combine a long European defense trade with a short of U.S. defense stocks, given Hegseth's desire to cut U.S. defense spending.

The Stoxx Europe aerospace and defense index XX:SXPARO has gained 18% this year, as the U.S.-listed Select Stoxx European Aerospace & Defense ETF EUAD has gained 21%.

The iShares U.S. Aerospace & Defense ETF ITA is up 4% this year.

The other beneficiary is gold. "The traditional hedge against risk surges that would follow from Trump's geopolitical adventure turning sour is complemented by the attraction of the yellow metal in the opposite scenario of 'America First' achieving the desired effect of peaceful coexistence, simply because the disruptive path to that happy outcome is strewn with uncertainty and danger," says Granville.

Gold futures (GC00) have surged to record highs, just shy of $3,000 an ounce. The VanEck gold miners ETF GDX has gained 19% this year.

-Steve Goldstein

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February 26, 2025 05:51 ET (10:51 GMT)

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