Shares of defence contracting giant BAE Systems have been hit hard by the pandemic because of concerns about the possibility of cuts to national defence budgets and the disruption to production and supply chains. The outcome of a highly contentious US election is also very relevant. While there are fears that a Joe Biden administration will substantially reduce the defence budget, the reality in our view is that such a move is unlikely.

The fact that the balance of power looks set to remain split between the Republican-controlled Senate, and Democrat-dominated House means that a slashing of defence expenditure would be difficult to push through. It may be more a case of a Biden administration picking its battles and leaving the defence budget alone. Further, while perhaps adopting a more conciliatory tone with trading partners, the Democrats may not want to lose any ground on the military front – particularly against the likes of Russia and China.