Regal Partners boss tips defence stocks, rare earths as military trillions fuel next investment super cycle

Soaring tensions between the US, Russia and China mean investors can create generational wealth by betting on defence stocks and rising government debt piles required to fund a rearmament push linked to a new Cold War. That’s the view of Regal Partners Investment Director, Charlie Aitken, who declared the “trade of the next decade” will be owning listed businesses that trouser soaring profits from $US1.5 trillion ($2.2 trillion) in US military spending in fiscal year 2027, with 32 NATO nations also committing to lift defence spending to 5 per cent of GDP by 2035. “I can see no more certain super cycle over the next decade than defence spending,” said Mr Aitken. “The spending will grow at multiples of GDP. While the knee-jerk market reaction to a de-escalation in the Middle East may well be profit-taking in defence equities, that would be a tremendous medium-term buying opportunity.” The veteran investor at the centre of Australia’s clubby investment circles, suggested several ways stock market investors can position to profit across defence hardware manufacturers, alongside uranium and rare earth producers. Position for a super cycle of defence spending He argued that China and Russia’s emergence as opponents, or enemies, rather than competitors, means every airport, port, sporting arena and city centre in the West will need anti-drone capabilities as the aerial vehicles shape the future of war and espionage. As such the stock picker tipped market darling Droneshield, and lesser known ASX-listed drone connectivity business Elsight. Rare earths are also required for the magnets that guide missiles used daily over the month-long Middle East conflict, with the US and other Western nations scrambling to secure alternative mineral supply from a market currently dominated by China. ”Depleted stockpiles of guided missiles and munitions must be rebuilt, and remember every Tomahawk Cruise missile needs 20kg of refined rare earths,” said Mr Aitken. “The demand for non-China sources of critical defence minerals is going to be enormous and extended.” Over the start of 2026 rare earth prices have jumped 26 per cent and Regal is telling its multi-millionaire clients and financial advisers to own ASX rare earth plays such as Lynas, Brazilian Rare Earths, Tivan Ltd, and Iperionx. “From an investment perspective you must now position for a defence spending super-cycle,” insisted the investor known for his high-conviction investment style. The other investment theme to back is rising uranium prices as demand for nuclear power cranks up in response to the oil and gas supply shock linked to the regional Middle East conflict, according to Mr Aitken. “The case for nuclear power just took an enormous step up,” he said. “The world can’t remain reliant of a 21-mile-wide shipping channel for its energy needs. I think you’ll see a major ramp up in nuclear generation approvals globally in the months and years ahead.” Regal Partners’ single largest uranium investment is in Canada-based developer Next Generation. The stock is up 150 per cent over the past year as investors back its multi-decade resource to deliver uranium from a Western jurisdiction in Canada. Government bond yields tipped to rise Mr Aitken also told investors to prepare for rising interest rates given the inflationary impacts of the Middle East’s energy supply shortfall. On Tuesday, interest rate swap traders were positioned for a cumulative 67 basis points of increases over 2026 to take Australia’s benchmark cash rate to 4.77 per cent at its highest level since 2011. For the May meeting of the Reserve Bank, rates traders currently put a 64 per cent chance on a rate increase, with 17 basis points of increases priced into interest rate futures markets. Mr Aitken said he believes longer-dated government borrowing rates will climb higher as a structural theme over the next decade, due to rising inflation and the cost of mammoth defence spending. “I am coming to the view that the single best long/short trade of the next decade is long beneficiaries of the defence spending super cycle and short long duration government bonds. Yes, shorting the so called risk free rate is the idea,” he said. In effect Mr Aitken means to bet on 10-year government bonds falling in value as the yields rise. Traditionally bond yields have fall in times of war as investors buy bonds as safe-haven assets, however in the Middle East conflict this correlation has broken as investors sold bonds on worries about surging inflation. “It is worth noting that all global government bond yields have RISEN during a war,” Mr Aitken wrote. “That is highly unusual and most likely reflects investor expectations of higher for longer inflationary pressure combined with a large global lift in global defence sector spending.” On Tuesday the Australian government 10-year bond yield fetched 5 per cent near its highest level since 2011 as economists warned headline inflation could reach 5.5 per cent over the June quarter. US 10-year government bond yields — widely regarded as the benchmark global risk free rate — have climbed 17 basis points over the past month to 4.35 per cent.