Putin’s Tough Talk Is Boosting Defense Stocks and Tanking Chinese EV Makers

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Defense stocks are rising along with global tensions after Vladimir Putin talked tough, reacting to recent gains made by Ukraine in that country’s war with Russia.

But along with defense gains, some seemingly unrelated stocks are getting hammered.

Wednesday, Putin called up reservists in Russia to fight in Ukraine, and floated the possibility of using nuclear weapons. The escalation comes after Ukraine won back some territory in a surprise attack a few days ago.

“The number looks to total about 300,000 troops,” wrote Vertical Research Partners analyst Rob Stallard Wednesday morning, adding the call ups would be the first mobilization of its kind by Russia since WWII.

The

iShares U.S. Aerospace & Defense ETF
(ticker: ITA) is up 1.7% in midday trading Wednesday while the

S&P 500
and

Dow Jones Industrial Average
are 0.5% and 0.6%, respectively.

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Inside the ETF, the more defense-oriented names are doing a little better, up about 2.4% on average. That includes stocks such as

Lockheed Martin

(LMT),

Northrop Grumman

(NOC),

Raytheon Technologies

(RTX), and

General Dynamics

(GD).

Putin’s decisions and rhetoric seem to be impacting Chinese stocks, too. China hasn’t condemned Russia aggression against Ukraine as aggressively as Western nations.

The

Invesco Golden Dragon China ETF
(PGJ), which holds stock in U.S.-listed Chinese firms, is off almost 5% Wednesday afternoon.

The Chinese electric-vehicle makers

XPeng

(XPEV),

Li Auto

(LI), and

NIO

(

NIO

) are down a lot.

XPeng

American depositary receipts are off about 10.8%. Li and NIO ADRs are both down about 8.5%. The selloff isn’t concentrated to one sector, though. Fifty-five stocks in the ETF are down, with 11 up.

Wednesday’s trading action continues a trend. The Aerospace & Defense ETF is down about 2% year to date, but larger defense names have added about 12% so far in 2022 on average. Defense has been a relative winner in 2022.

The Golden Dragon ETF is off about 26% year to date partly because of rising tensions between the U.S. and China.

The three Chinese EV makers’ ADRs are down about 47% year to date on average. In addition to geopolitical tensions, they have also had to deal with rising interest rates, which tend to depress earnings of richly valued, high-growth stocks—such as XPeng, NIO, and Li—more than others. The combined sales of the three are forecast to rise about 68% from 2021, and none are consistently profitable at this point.

Write to Al Root at [email protected]