Amid the selloff in Asian and European stocks Wednesday, one sector was notably buoyant: defense. Shares in BAE Systems, the U.K.’s largest arms supplier, and French defense-electronics firm Thales were up 3% in midmorning trading. At first glance the reaction seems odd, particularly for BAE. The U.S. accounted for 38% of the company’s revenues last year, and the Department of Defense three-fifths of that. Given Donald Trump’s populist and evidently popular wish to bring jobs home, investors might expect sales to come under pressure.
Investors have instead focused on two alternative policies sketched by Mr. Trump during this year’s campaign. First, he has made the classic Republican commitment to increase military spending, which may offset a preference for U.S. contractors.
More important, the president-to-be has combined attacks on the North Atlantic Treaty Organization that underpinned European security during the Cold War with overtures to Russian President Vladimir Putin, a potentially radical subversion of previous U.S. policy.
If Europe can no longer count on American military support to contain simmering problems on the Russian borderlands and in the Middle East, it will have to increase its own spending. Or in a more benign scenario, Mr. Trump succeeds where others have failed, by holding more NATO members to commitments to spend 2% of output on defense.
Asia also betrayed nervousness. During the campaign, Mr. Trump talked of making Japan and South Korea carry more of the regional defense burden. Japanese defense stocks Tokyo Keiki, which makes electronics for jet fighters, and Ishikawa Seisakusho, which manufactures naval mines, leapt 18% and 14% respectively in afternoon trading Wednesday. Shares in Korea Aerospace Industries Ltd., a major Korean contractor, rose 1.9% against a 2.3% fall in the wider market. A Trump victory has made the world feel a little less secure.