Transcript: Ukraine strikes Russia with US missiles

This is an audio transcript of the FT News Briefing podcast episode: ‘Ukraine strikes Russia with US missiles’

Sonja Hutson
Good morning from the Financial Times. Today is Wednesday, November 20th. And this is your FT News Briefing.

Bridgewater is partnering with State Street on a new ETF. And both the west and Russia are upping the ante in Ukraine. Plus, Asian defence stocks are booming this year. I’m Sonja Hutson, and here’s the news you need to start your day.

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The hedge fund Bridgewater is teaming up with State Street’s asset management arm. They’ll be offering an exchange traded fund dubbed the “All Weather” fund. It basically has a huge range of assets that are meant to profit under a lot of different market conditions. The deal still has to be approved by US regulators, though. Traditional asset managers like State Street have been rushing to strike agreements with big names in alternative assets. KKR has recently cosied up to Capital Group, for example, and BlackRock is flirting with Partners Group. The traditional folks want to stay relevant to retail customers and the alternatives managers are hoping the partnerships will help them reach wealthy customers.

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Ukraine has hit Russia with US-made long-range missiles for the first time. That’s according to Ukrainian officials. The US lifted restrictions on their use last week. It was a huge policy shift. Here to talk about the escalation is the FT’s Chris Miller. Hi, Chris. How’s it going? 

Christopher Miller
Hey, it’s going fine here, but currently sitting in the dark. Russia launched a missile attack over the weekend and knocked out some of Ukraine’s power generation capacity. So we are back to rolling blackouts across the country. 

Sonja Hutson
Wow. Well, Chris, thanks for joining us in the dark. What do we know about these strikes that Ukraine launched on Russia? 

Christopher Miller
We don’t know a whole lot except for the fact that Ukraine launched this first initial strike using American-provided weapons against a Russian ammunition depot in the Bryansk region. This is a region that’s not too far away from the Kursk region, where Ukraine holds about 600 sq km of territory that it’s really trying to hold on to while Russia’s trying to push it out of that territory. 

Sonja Hutson
Now, I mentioned just the fact that the US is allowing Ukraine to do this was a big policy shift. What does this mean for the war itself? Is this a turning point? 

Christopher Miller
You know, it’s certainly a turning point in terms of American policy. However, you know, analysts that I speak with, even Ukrainian military officials here say, you know, this isn’t going to be a silver bullet for us. It’s not going to completely turn the the tide of the war in our favour, but it will hopefully have an impact on the battlefield, particularly around potentially this region, of course, where the Russians are trying to push out the Ukrainians who are holding territory there that they captured back in August. 

Sonja Hutson
Do you think that this will prompt European countries to allow Ukraine to launch their missiles into Russian territory? 

Christopher Miller
So the United Kingdom and France have both provided long-range weapons to Ukraine, and they have signalled that they would allow the Ukrainians to use these missiles inside of Russia, but they haven’t really given the green light for Ukraine to use them . . . but because they haven’t really wanted to be out of step with Washington. So it could be that within the next days or weeks we could see potentially the use of these British and French weapons inside of Russian territory. But right now, we haven’t heard a direct decision made in London or Paris yet. 

Sonja Hutson
So as Ukraine starts to use these long-range missiles in Russia from the US, potentially from other countries as well, how is Russian President Vladimir Putin responding to that? 

Christopher Miller
Well, Putin has responded by signing a decree lowering Moscow’s potential threshold for using nuclear weapons, while his foreign minister, Sergei Lavrov, said that it’s impossible to use these weapons inside of Russia without Washington’s direct support. So they’re saying that the US and by extension Nato are now directly entering this war. But of course, we know that Russia has escalated long before Russia has brought more than 10,000 North Korean troops into the fight. It’s also taken missiles from Iran. And so we are seeing the expansion of this war. Neither side really can continue the war at this pace with the casualties that they’re sustaining, the resources that they’re expending. And so we’re seeing Russia’s allies, as well as Ukraine’s allies, deepened their support for each other’s war efforts. 

Sonja Hutson
Chris Miller covers Ukraine for the FT. Thanks, Chris. 

Christopher Miller
Thank you for having me. 

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Joseph Cotterill
Hi there.

Sonja Hutson
So first off, can you give us an idea of just how well Asian defence stocks have been doing? 

Joseph Cotterill
If you look at the top 20 or so best-performing stocks in the world this year, you’ll notice that one or two are surprising names. Next to the Nvidias, the Palantirs and the other big US names that you might expect, names such as Hanwha Aerospace and Mitsubishi Heavy Industries. These are Asian defence companies of various stripes, and they represent a region that is itself rearming, a response to a darkening international security order, but also a region that is sending more of its arms abroad. 

Sonja Hutson
And which countries in particular are doing really well?

Joseph Cotterill
Korea and Japan are the standouts. Korea last year became one of the world’s top 10 arms exporters. It’s really risen up the ranks. That’s partly because of industrial policy. It has a defence industry that it’s nurtured at home for obvious reasons, given the threat of North Korea. But also it makes the right kind of kit cheaply enough for European and increasingly Middle Eastern states to be interested. And then we have Japan. It’s increasing defence spending from what was an informal cap of about 1 per cent of GDP towards a more Nato-style 2 per cent of GDP. That’s very much the story of Japan rearming itself in recent years. 

Sonja Hutson
Is there a regional or geopolitical element to why these countries have been so successful in selling arms? 

Joseph Cotterill
This represents a fragmentation of the global security order and responses to a more isolationist United States, particularly as the second administration of Donald Trump looms over the world. If the US security umbrella of recent decades is becoming less sustainable as it turns inward, countries need to rearm as quickly and as cheaply as possible. 

Sonja Hutson
So given all this uncertainty, then, should we expect defence stocks to keep outperforming other industries for the foreseeable future? 

Joseph Cotterill
The caveat here is that defence and aerospace stocks generally do depend on big government orders flowing in. On the other hand, the Korean companies that we began with, their order books have really grown in the last few years, whether that’s Poland and Romania buying Korean tanks or Middle Eastern states being interested in Korean-made missile defence. Also, the US Navy was in the middle of a big reorganisation. Korean shipbuilders are interested in helping to refit and resupply that naval rearmament by the US. And so to the extent we can expect those to continue, yeah, the outlook is pretty strong for defence stocks and that’s partly reflected in their valuations. 

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