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Peace Talks Amid Rising Geopolitical Risks Across Several Regions
December was marked by continued geopolitical uncertainty, with markets oscillating between hopes of diplomatic progress in the Ukraine conflict and concerns about escalation in other regions. Defense stocks performed positively toward year-end, with periods of profit-taking following a strong year, while the sector continued to demonstrate relative strength versus broader equity indices on a full-year basis. Finserve Global Security Fund delivered a return of 44.83% for the year.
Ukraine
Expectations surrounding peace talks in Ukraine have had a clear impact on European defense stocks from a sentiment and risk perspective. The management team has remained skeptical about the conditions required to achieve a long-term, sustainable peace in Ukraine.
A four-hour-long press conference in December clarified Russia’s position. President Putin rejected any responsibility for the invasion and placed the blame for the continuation of the war on Ukraine and the West. He reiterated that Russia’s military objectives would be achieved and emphasized that the country is open to peace negotiations only on its own terms. In practice, these terms involve demands for territorial recognition and security concessions that Ukraine has consistently rejected. At the same time, attacks on Ukraine intensified.
As Western countries may have reached a consensus in January regarding security guarantees for Ukraine, Kremlin spokespersons responded by stating that foreign troops in Ukraine would be considered legitimate military targets. This development suggests that Europe and the United States need to expand sanctions and provide military support aimed at influencing Russia’s room for maneuver and the dynamics of the conflict, rather than merely maintaining the status quo.
President Zelenskyy and European leaders are now carefully navigating ongoing discussions with the United States to avoid provoking the Trump administration, thereby reducing the risk of reduced U.S. engagement in Ukraine and Europe.
From a European perspective, the ongoing rearmament reflects a structural and long-term shift, regardless of whether the conflict results in a ceasefire or becomes frozen. The focus is increasingly on production capacity and endurance rather than short-term, ad hoc solutions.
Asia
Relations between Japan and China have deteriorated to levels comparable to those seen in 2012, when the disputed Senkaku Islands were a focal point of tension. Japan has expressed support for Taiwan and increasingly links its own security to developments in the region. The country has accelerated investments in multi-layered air and missile defense, strengthened naval presence, and expanded sensors and command-and-control systems to address a more complex threat environment.
These actions have drawn strong criticism from China, which views Taiwan as a domestic matter and has imposed export restrictions on Japan covering so-called dual-use products. This marks a broadening of the conflict landscape to include trade and technology. This trend is also evident in the situation in Venezuela. As a result, strategic resources are gaining increased geoeconomic importance, with clear implications for financial markets.
At the same time, China has continued to demonstrate military capability in the region through extensive exercises around Taiwan, including coordinated air and naval operations. These activities have further raised tensions in the East and South China Seas and increased the risk of incidents, particularly around the disputed Senkaku/Diaoyu Islands. Taiwan, in turn, has emphasized its willingness and preparedness to defend itself, contributing to a more strained regional security environment.
| December 2025 – Top performers | December2025 – Worst performers | ||
| EOS HOLDINGS | 108 % | BIGBEAR.AI | -15 % |
| KENCOA AEROSPACE | 75 % | CACI INTERNATIONAL | -14 % |
| PLANET LABS | 66 % | SCANDINAVIAN ASTOR | -12 % |
| OVZON AB | 36 % | ACSL LTD. | -10 % |
| AST SPACEMOBILE | 29 % | IONQ INC. | -9 % |
Company-specific and report commentary
This month, we highlight two companies that delivered the strongest returns in the portfolio.
Electro Optic Systems Holdings
EOS is an Australian defense company operating within Defence Systems and Space Systems, focusing on remote weapon systems, optical sensors, and laser and optoelectronic solutions for defense and space applications.
The EOS share price rose by 108% in December following several significant contract announcements. The company reported an approximately USD 80 million contract with a Korean partner, strengthening its position in high-energy laser systems, as well as a USD 33 million contract with General Dynamics for the delivery of Remote Weapon Systems and a re-entry into the U.S. market. Overall, EOS ended the year with an order backlog of approximately USD 525 million, reinforcing market confidence in the company’s growth profile.
Kencoa Aerospace
Kencoa Aerospace is a South Korean defense and aerospace company that manufactures components, structures, and materials for the aerospace and space markets, including aerostructures as well as engine- and space-related parts. The company is a Tier-1 supplier to major global OEMs and defense contractors.
Kencoa Aerospace gained 75% in December, in line with a broad re-rating of Korean space-related stocks following increased market expectations of a potential SpaceX IPO in 2026. The stock is traded as a “SpaceX-related” exposure in the Korean market, reflecting the company’s involvement in delivering, or being associated with, components supplied to SpaceX. As a result, the share price tends to move in response to SpaceX-related news and catalysts.
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