‘We are not losers, we are winners’: Ukraine reflects on four years of war

Four years into the war, Ukraine shows civilian resilience but faces a protracted conflict with Russia controlling roughly 10% of Ukrainian territory and Russian-held positions still hundreds of kilometres from Kyiv; the article cites a reported 1.3 million Russian soldiers killed or seriously wounded. Kyiv’s limited battlefield gains, manpower shortages after a failed counteroffensive, and ongoing reliance on Western assistance—highlighted by the EU’s €90bn ($106bn) loan to fund Ukraine’s military through 2027—signal sustained fiscal and defense support but continued geopolitical uncertainty that will influence regional sovereign risk and defense spending decisions.

Analysis

Market structure: Prolonged war favors aerospace & defense primes (Northrop NOC, Lockheed LMT, RTX) and munitions/aftermarket suppliers while Russian assets, Black Sea grain shippers and regional EM credit remain stressed. Steady EU fiscal support (€90bn to 2027) implies multi-year, predictable demand for Western systems and sustainment—supporting 15–25% upside scenarios for core defense names over 12–24 months versus cyclic aviation peers.

Risk assessment: Tail risks include NATO escalation (low-probability, high-impact commodity shock), major strikes on European gas infrastructure (3–6 month shock to energy prices), or a negotiated ceasefire that materially reduces Western arms purchases (12–24 months). Immediate (days) volatility is event-driven around anniversaries; short-term (weeks/months) depends on tranche disbursements; long-term (years) sees structurally higher defense budgets and persistent spare-parts demand.

Trade implications: Favor concentrated long exposure to defense (1–3% positions in NOC/LMT and ITA ETF), tactical longs in wheat/fertilizer (ZW, MOS) and gold as a 0.5–1% tail hedge. Use 3–6 month call spreads on NOC/LMT to cap cost and buy 1–2% notional long protection on Russian-exposure ETFs (e.g., RSX puts) to express downside of Russia-linked assets.

Contrarian angles: Markets underprice recurring sustainment and MRO revenues (parts, training, repairs) which have higher margin visibility than new-build sales—target smaller defense suppliers and service providers. Also, if EU/US funding slips >30 days, expect sharp de-rating in defense names; conversely, continued quarterly tranche confirmations should re-rate the sector quickly.

Key Decisions for Investors

• Establish a 2–3% portfolio long split: 1% NOC, 1% LMT, 0.5–1% ITA (iShares U.S. Aerospace & Defense ETF). Time horizon 6–24 months; sell/trim on +20% move or if EU/US funding is paused >30 days.
• Buy 3–6 month call spreads on NOC and LMT (buy ATM, sell 10–15% OTM) sized at 0.5% notional each to capture upside with defined cost; close if spread gains +80% or underlying rises >20%, cut if tranche disbursement delayed >60 days.
• Allocate 0.5–1% to agricultural commodities: long wheat futures (ZW) or long positions in MOS/CF (fertilizer exposure). Target +30–40% within 3–9 months; stop-loss at -12% to limit downside from seasonal harvest moves.
• Establish a 0.5% hedge against Russian asset risk: buy RSX 3–6 month puts or short RSX (if available). Close hedge if RUB strengthens >10% vs USD or if credible ceasefire/peace treaty is announced within 90 days.
• Active monitoring trigger: increase defense exposure by +1–2% within 30–90 days upon confirmation of at least one additional multi-year EU/US tranche (≥€5bn or equivalent) or official procurement awards; reduce exposure if tranche delays exceed 30 days or significant diplomatic de-escalation occurs.