If Russian President Vladimir Putin orders his troops to invade Ukraine, the two largest land armies in Europe would clash in a battle that will rattle the continent and send stock markets into a tailspin.
How do you prepare for this crisis?
Ukraine has placed its bet on sophisticated weapon systems from Raytheon (RTX) and Lockheed Martin (LMT) to defend itself. Global investors may want to follow suit by adding those names to defend their portfolios.
Javelin, an anti-tank guided missile system produced in partnership by Raytheon and Lockheed Martin, is one of those weapons. NLAW, the Next-generation Light Anti-tank Weapon designed by Saab (OTCPK: SAABF) and manufactured by Thales (OTCPK: THLEF), is another. Both will play a key role in repelling the attack from the largest tank force in the world.
Putin’s order to send hundreds and perhaps thousands of tanks into Ukraine would inadvertently open a large, untapped market for Javelins and NLAWs, and ensure that demand is strong. The resolve demonstrated by the US, Britain, and other allies suggests the Ukrainian army will not be supply-restricted.
The invading force must watch out for other Raytheon-made systems, such as Stinger, a shoulder-fired surface-to-air weapon, which will shoot enemy targets out of the sky. Ukraine wants to acquire an even more capable surface-to-air missile system, Patriot, but the US has not approved the measure yet. This may change quickly if Russia escalates.
As part of your defensive investment strategy, you may also want to de-risk your portfolio by reducing exposure to Russian stocks, such as Gazprom (OTCPK: OGZPY), Sberbank (OTCPK: SBRCY), or Yandex (YNDX). Owning those during the Putin attack would probably feel like Armageddon.
Days after security talks between the US and Russia collapsed in Geneva on January 10, RAF C-17 planes took off from an airbase in the UK and took course on Ukraine, carrying hundreds of NLAWs.
The airbridge is a pivotal moment in the conflict, suggesting the Ukrainian armed forces will be quickly supplied and resupplied. Overall, almost 2,000 NLAWs and other equipment were delivered to Ukraine within days.
Immediately, the US proceeded with its own airlift, delivering hundreds of tons of defense equipment, including Javelins, as part of a $ 200 million emergency security package. Ukraine now has about 1,200 Javelins to confront the enemy tank force.
Note that Javelin and NLAW are high-precision fire-and-forget weapon systems that are super-effective at taking out tanks and other targets. One missile usually hits the target on the first shot.
Russia may put 1,200 tanks up against Ukraine, according to some estimates, and those will be met by 900 Ukrainian tanks. Add to this equation about 3,200 of highly effective anti-tank weapons operated by Ukrainian soldiers, and you will understand why the Russian advance may not be as rapid as Russian generals hope.
Russia may be able to resupply hardware lost in battle, but it will not be able to quickly replace crews that take many months to train. This will inevitably slow down the Russian advance and will surprise Putin to the downside.
If you checked the prices of Ukrainian Eurobonds recently, you might wonder how will Ukraine be able to pay for the military supplies? It’s a fair question. With the bond prices at record lows, capital markets are effectively shut down for Ukraine.
In an article on August 3, 2021, I warned investors that reducing exposure to the Ukrainian debt was prudent due to the government’s messy economic policy. I argued the government’s lack of reforms and rampant borrowing at high interest rates boosted inflation and slowed economic growth, with the economy entering recession in Q2 2021.
I do not know if President Volodymyr Zelensky has agreed with my assessment, but three months later, on November 3, he fired his entire economic team. Although a step in the right direction, this measure may be too little too late. With the Russian troops massing on the Ukrainian border, the government may even be less inclined to launch necessary reforms.
Bad news for Putin, however, is that the US, Britain, Canada, and other allies are helping Ukraine to foot the defense bill. For example, the US has committed $ 650 million of security assistance to Ukraine in the past year and $ 2.7 billion in total since 2014.
A bipartisan group of US senators has been working on legislation that would dramatically increase the amount of US military aid for Ukraine. Lawmakers from both parties have said they want to act quickly to help the country.
As Russia is in overdrive trying to intimidate its neighbors by massing 120,000 troops on the Ukrainian border, owning Russian stocks has become high risk. Gazprom is a clear example.
In an article on October 13, 2021, I warned investors about the rising political risk for Gazprom. Three months later, on January 12, Fatih Birol, the head of the International Energy Agency, confirmed my thesis that Gazprom is behind the worsening gas crisis in Europe.
Another month later, on February 7, Ursula von der Leyen, the president of the European Commission, disclosed that biggest European natural gas consumers had been working on cutting their dependence on Gazprom.
Gazprom share price has tanked, and the prospect of war must terrify its shareholders.
The Russian government – the company’s largest shareholder and its de-facto manager – has been increasingly using Gazprom as a tool for exerting pressure on countries instead of maximizing returns for shareholders. This affiliation has now become a liability that investors can not ignore.
The saber-rattling has already caused Russian stocks to drop. Sberbank has shaved 41% off its value between November 8, 2021, and January 26, while Yandex has plunged 51% in the same period, underscoring the political risk.
If Putin’s tanks cross the Ukrainian border, the US and the European Union would impose severe sanctions on Gazprom, most likely shutting down Nord Stream 2, its $ 11 billion submarine gas pipeline from Russia to Germany. Cutting Russian banks off SWIFT is also on the table.
The sanctions may affect western companies, but efforts are underway among world business leaders to stop Putin, even if it comes at a price. British billionaire Richard Branson, the largest shareholder of Virgin Galactic (SPCE), has penned a powerful letter on January 26 urging the leaders to come together to protect the sovereignty of Ukraine.
With Russian military assets assembled and ready for the attack, the question on everybody’s mind is when to expect the strike?
Putin has not made his final decision yet, according to latest assessments by US intelligence. Timing markets is hard, but timing authoritarian rulers is harder. Historical parallels might be helpful, and one can not help but notice that Putin has special affinity for the Olympics.
Russia’s two most recent military incursions were either back-to-back or during the Olympics. Putin annexed Crimea from Ukraine in March 2014 right after completing the Winter Olympics in Sochi in February. Russia invaded Georgia on August 8, 2008, the same day the Summer Olympics in Beijing had started.
This year’s Winter Olympics in Beijing, which began on February 4, is supposed to end on February 20.
Note that massive Russian military drills in Belarus that started on February 10 are also supposed to end on February 20. This puts the troops into the highest state of readiness and best positioned for the attack.
So, February 20 opens a potential window for Putin. Warmer weather in early March is likely to close that window by making it harder for Russian tanks to roam across dirt terrain – an easy target for Javelins and NLAWs.
These dates you may want to add to your calendar.