Ukraine War and Prospects for PeaceThe ongoing war in Ukraine, now entering its fourth year of full-scale conflict, continues to reshape geopolitical risk and investment decisions globally. For investors, the challenge is to manage the asymmetric risks of a protracted war while remaining positioned for a potential peace dividend. Drawing on conflict research and historical cases, this article presents two complementary investment strategies: one aligned with a possible de-escalation or ceasefire in the next 12–24 months, the other designed to hedge against continued instability or escalation.
Peace Positioning Strategy (Base Case)
Should the war move toward de-escalation in 2025 or 2026, certain sectors are likely to outperform significantly. Infrastructure and construction companies such as Caterpillar, Vinci, Strabag or Heidelberg Materials could benefit from post-war rebuilding and logistics modernization in Eastern Europe. Industrial stocks like BASF or ArcelorMittal may rise on improved regional trade flows and demand for building materials. Banks with exposure to Eastern Europe, such as Raiffeisen or OTP Bank, could experience re-ratings as sovereign risks decline and local loan activity revives. Agricultural machinery firms like John Deere or fertilizer producers like Nutrien and Yara may also see tailwinds due to renewed agricultural exports from Ukraine and surrounding regions.
To access these themes efficiently, investors can consider ETFs such as the iShares MSCI Eastern Europe Capped ETF (if reintroduced), the SPDR S&P International Industrial ETF (IPN), or the Xtrackers MSCI EMEA Infrastructure ETF. These vehicles provide diversified exposure to peace-leveraged equities. A hypothetical future ETF focused on Ukraine reconstruction could offer very high upside, but it does not yet exist.
Target returns in this peace scenario are estimated between 20–35% over a 12–24 month horizon, with defined stop-loss levels between -10% and -15% to protect capital. For example, a position in an infrastructure ETF might have a target of +30% with a stop-loss at -15%. For bank or material stocks, upside could reach +50% in select cases, though volatility remains high.
Hedging Against Conflict (Risk Scenario)
If the conflict persists or escalates further into 2026 or beyond, portfolios must remain resilient against commodity shocks, defense spending surges, and persistent volatility. Defense contractors such as Rheinmetall, BAE Systems, or Lockheed Martin may benefit from increased military expenditures in Europe and the U.S. Energy majors like Shell, Equinor, or Chevron may profit from renewed pressure on energy supply chains.
In terms of ETF hedges, the iShares U.S. Aerospace & Defense ETF (ITA) and the Invesco DB Commodity Index ETF (DBC) offer exposure to global defense and broad commodities, respectively. Precious metals—especially gold—remain core hedging instruments, either through direct holdings or via ETFs like Xetra-Gold or the VanEck Gold Miners ETF (GDX), which tracks miners such as Barrick Gold and Newmont.
Expected returns in this defensive strategy range from +10% to +25% over the same 12–24 month period, depending on the asset. Defense equities may return up to +40% under sustained geopolitical tensions. A stop-loss discipline remains critical here as well, generally set tighter (e.g., -10% to -12%) due to high volatility and potential news-driven reversals.
Portfolio Allocation Suggestion
Investors may consider a split allocation, combining peace-beneficiary assets with defensive hedges and a tactical cash buffer. For example, a portfolio of €10,000 could allocate €4,000 toward peace-aligned themes (such as infrastructure ETFs or Eastern European banks), €2,500 in defense or energy hedges (e.g., ITA, oil stocks), €1,500 in gold or gold miners (e.g., Xetra-Gold or GDX), €1,000 in commodity broad hedges (e.g., DBC), and €1,000 held in cash for flexibility or drawdown buying.
This approach offers diversification across geopolitical scenarios and maintains optionality in a rapidly evolving environment.
Return Outlook and Scenarios
In a peace or ceasefire scenario, portfolio returns could reach +18% to +30% over 12–24 months, driven by sector re-ratings and reconstruction optimism. In a baseline stalemate scenario, returns are expected to be more muted, in the +5% to +10% range, as defensive positions offset lackluster peace exposure. In the case of renewed escalation, select hedges (defense, energy, gold) could still generate +10% to +15%, while broader risk assets may suffer losses of -5% or more.
Risks to Monitor
Major risks include premature positioning for peace that fails to materialize, overexposure to volatile frontier assets, and policy-driven shocks such as expanded sanctions or regional energy disruptions. Tactical flexibility and strict risk management (via stop-losses and position sizing) are essential in both scenarios.
Disclaimer
This article is provided for informational and educational purposes only and does not constitute investment advice, a solicitation, or an offer to buy or sell any securities. All investments involve risk, including possible loss of capital. The views expressed are those of the author and do not reflect the official policy or position of any institution. Forecasts, targets, and projections are based on current market conditions and subject to change without notice. Readers are advised to consult with a licensed financial advisor before making investment decisions. ETFs, stocks, and instruments mentioned are for illustrative purposes only.
