With the war in Iran ongoing, previous fears of a potential stock market crash have been sent into overdrive. And now the list of potential crash-triggering catalysts is becoming quite long.
Some of the biggest concerns include:
- Further escalation of military conflict around the globe.
- Global energy market shock due to oil & gas supply chain disruptions in the Middle East.
- Global trade disruptions triggered by US tariffs.
- An artificial intelligence (AI) bubble potentially bursting as promised returns on investment fail to materialise.
- Sticky inflation leaving interest rates higher for longer, pressuring low-earning consumers into more debt.
- Sky-high valuations are setting the stage for volatility, particularly among US stocks.
This is all understandably concerning. So what should UK investors do to protect their portfolios?
Keep calm, carry on
Even if disaster strikes, UK investors are already in a more favourable position compared to US investors. That’s because, despite the FTSE 100 trading near record highs, UK shares remain fundamentally undervalued compared to international markets.
At the same time, the majority of the FTSE 100’s profits come from more defensive industries such as energy, miners, banks, and healthcare. That doesn’t mean UK large-cap stocks are bulletproof, but they are at least wearing some body armour.
As such, for British investors trying to navigate all the chaos of the stock market today, the best strategy largely remains unchanged. Don’t try to time the market, and instead focus on building a diversified portfolio of high-quality businesses spanning multiple geographies and sectors.
With that in mind, what are some defensive UK stocks that investors should consider?
A standout performer?
A defensive category for investors to consider in 2026 is, ironically, defence. With NATO countries committing to increasing their defence spending, fuelled by geopolitical uncertainty, this sector’s benefiting from multi-year structural tailwinds right now. And of the listed defence companies, BAE Systems (LSE:BA.) stands out as a popular pick among the experts.
As one of the world’s largest defence groups, BAE Systems lies at the heart of NATO militaries, helping build fighter jets, nuclear-powered submarines, armoured vehicles, and even supplying cybersecurity solutions. And using its scale advantage, management’s already grown its order backlog to a record £83.6bn!
That’s enough to keep the business busy for the next three years, even if geopolitical tensions start to cool. But, despite the compelling growth outlook, there are some key risks for investors to consider.
From a valuation perspective, BAE shares have seen a rapid surge, signalling that much of the anticipated growth could already be priced in. At the same time, while the order book’s undeniably impressive, delivering on those orders on time and on budget could be a challenge, especially for complex projects like nuclear submarines.
Delays and cost overruns could put significant strain on profit margins, especially if supply chain disruptions enter the mix.
Nevertheless, for investors looking for a defensive defence opportunity in an increasingly uncertain stock market, BAE shares could be worth a closer look. And it’s not the only business that shows promise.
