How Emerging Markets Equities Benefit From Rising Defense Spending

Global conflict is on the rise in 2026, as it has been already in recent years. From Russia’s invasion of Ukraine to the U.S. attacks on Venezuela and Iran, conflict has driven volatility increasingly higher. Defense spending has risen at the same time, as nations prepare for an increasingly multipolar world. While that may perturb some investors worried about emerging markets equities, in reality, emerging markets equities can benefit.

See more: Emerging Markets ETF AVEM Tops Its Category for Flows in February

As investors clamor for ex-U.S. equities, growing military conflict threatens some aspects of global markets. The Strait of Hormuz, one of the most important geographical subregions for the global economy, is currently an active combat zone, impacting global energy costs. Amid those concerns, however, emerging markets equities can actually provide some benefits.

2026, Conflict, and Emerging Markets Equities

According to recent analysis from American Century Investments, emerging markets companies are playing a bigger role in global military spending. China and South Korea placed in the top 10, fourth and tenth respectively, and Turkey eleventh, for arms exports between 2020 and 2024. 

Some other key trends include U.S. pressure for greater defense spending on NATO, growing budgetary capabilities for smaller economies to spend on defense, and rising geopolitical conflict, of course, all driving spending on military industries. That shows the demand is there for firms ready to take it.

Per the report by American Century Investments leaders Patricia Ribeiro and Nathan Chaudoin, there is a case for emerging market equities firms in defense to stand out. Emerging markets defense firms have shown their ability to specialize and deliver orders faster. Support from governments in those markets has helped them compete, as well.

The right emerging markets equities ETF can get exposure to that growing trend. The Avantis Emerging Markets Equity ETF (AVEM) provides one exciting option. The strategy has picked up huge inflows in recent weeks, charging a 33 basis point fee for its approach. The fund, which offers a systematic active approach, has returned 45.4% over the last one year, according to ETF Database data.

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