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Ripple Effects of the US-China Tension on Asian Emerging and Frontier Markets with Portfolio Implications

  • Naveed Khan ORCID logo EMAIL logo , Ozair Siddiqui ORCID logo , OlaOluwa S. Yaya ORCID logo and Xuan Vinh Vo ORCID logo
Published/Copyright: March 24, 2025
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Studies in Nonlinear Dynamics & Econometrics
From the journal Studies in Nonlinear Dynamics & Econometrics

Abstract

In this paper, we investigate the ripple effects of the US-China tension on Asian emerging markets (India, Indonesia, South Korea, Malaysia, Philippines, Taiwan, and Thailand) and Asian frontier markets (Bangladesh, Sri Lanka, Pakistan, Bahrain, Kuwait, Vietnam, and Oman) for the period spanning from February 2013 to February 2024. The US-China Tension Index (UCTI) is a proxy variable for the US-China tension. Time-varying parameter vector autoregression, wavelet coherence, and hedging effectiveness techniques are employed for the empirical analysis. Findings show that the total connectedness between UCTI and Asian frontier markets is stronger than that of Asian emerging markets. Moreover, findings reveal that, in the case of Asian emerging markets, Indonesia, South Korea, Malaysia, Philippines, Taiwan, and Thailand are net transmitters of return spillovers, while India is a net receiver. In the case of Asian frontier markets, we find that Sri Lanka, Bahrain, Pakistan, Kuwait, and Oman are net transmitters. At the same time, Bangladesh and Vietnam are net receivers of return spillovers. In the frequency co-movement analysis, we report a positive correlation between UCTI and these markets at lower frequencies. In comparison, we report a negative correlation at the middle and higher frequencies. Furthermore, we report that hedging ratios highlight the significance of modifying portfolio weights in uncertain times when looking for investment opportunities in Asian emerging and frontier markets. Similarly, our findings highlight important implications for investors and portfolio managers to optimize their investments with risk-adjusted portfolios.

Keywords: time-varying parameter vector autoregression; wavelet coherence; portfolio implications; Asian markets; US-China tension
JEL Classification: C22; E44; G11; G12; G15
Corresponding author: Naveed Khan, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan, E-mail: 

Funding source: University of Economics Ho Chi Minh City, Ho chi Minh city, Vietnam

Acknowledgement

OlaOluwa S. Yaya is a Research Fellow at the University of Economics Ho Chi Minh City, Vietnam. Comments of the Editor and the anonymous reviewers are greatly acknowledged.

  1. Research funding: This research is partly funded by the University of Economics Ho Chi Minh City, Ho chi Minh city, Vietnam.

Appendix 1

Bivariate Portfolio Weights Hedge Ratio.

Mean SD 5 % 95 % HE p-value Mean SD 5 % 95 % HE p-value
India/Indonesia 0.50 0.16 0.25 0.69 0.32 0.57 India/Indonesia 0.59 0.13 0.43 0.78 0.32 0.97
India/South Korea 0.39 0.06 0.27 0.48 0.21 0.08 India/South Korea 0.57 0.04 0.52 0.65 0.29 0.81
India/Malaysia 0.46 0.22 0.05 0.68 0.44 0.07 India/Malaysia 0.40 0.29 0.12 0.92 0.18 0.27
India/Philippine 0.53 0.06 0.42 0.61 0.16 0.28 India/Philippine 0.60 0.07 0.51 0.70 0.45 0.80
India/Taiwan 0.60 0.18 0.24 0.80 0.20 0.23 India/Taiwan 0.45 0.15 0.29 0.70 0.29 0.71
India/Thailand 0.53 0.09 0.38 0.66 0.23 0.44 India/Thailand 0.53 0.09 0.42 0.69 0.35 0.74
India/Bangladesh 0.47 0.05 0.41 0.53 0.45 0.00 India/Bangladesh 0.09 0.10 −0.05 0.20 −0.01 0.97
India/Sri Lanka 0.58 0.05 0.48 0.65 0.22 0.00 India/Sri Lanka 0.14 0.05 0.06 0.20 0.06 0.77
India/Pakistan 0.65 0.02 0.62 0.67 0.13 0.00 India/Pakistan 0.31 0.07 0.20 0.40 0.20 0.65
India/Bahrain 0.38 0.09 0.16 0.50 0.56 0.80 India/Bahrain 0.42 0.15 0.22 0.64 0.10 0.76
India/Vietnam 0.71 0.03 0.66 0.75 0.15 0.00 India/Vietnam 0.28 0.08 0.16 0.37 0.17 0.48
India/Kuwait 0.98 0.01 0.97 0.99 0.02 0.00 India/Kuwait 0.01 0.00 0.00 0.01 0.00 0.99
India/Oman 0.33 0.07 0.24 0.44 0.56 0.29 India/Oman 0.37 0.10 0.22 0.49 0.10 0.00
Indonesia/India 0.50 0.16 0.31 0.75 −0.11 0.03 Indonesia/India 0.59 0.04 0.51 0.63 0.30 0.56
Indonesia/South Korea 0.41 0.13 0.28 0.66 −0.08 0.01 Indonesia/South Korea 0.42 0.04 0.36 0.50 0.20 0.81
Indonesia/Malaysia 0.46 0.12 0.24 0.55 0.38 0.69 Indonesia/Malaysia 0.09 0.39 −0.30 0.78 −0.05 0.27
Indonesia/Philippine 0.50 0.13 0.37 0.76 −0.10 0.02 Indonesia/Philippine 0.59 0.10 0.39 0.68 0.39 0.80
Indonesia/Taiwan 0.69 0.13 0.42 0.85 0.18 0.00 Indonesia/Taiwan 0.56 0.06 0.45 0.62 0.11 0.71
Indonesia/Thailand 0.53 0.07 0.44 0.68 0.03 0.02 Indonesia/Thailand 0.65 0.09 0.47 0.73 0.33 0.74
Indonesia/Bangladesh 0.47 0.03 0.44 0.54 0.29 0.00 Indonesia/Bangladesh −0.13 0.16 −0.35 0.14 −0.08 0.97
Indonesia/Sri Lanka 0.57 0.12 0.44 0.75 −0.10 0.00 Indonesia/Sri Lanka 0.25 0.11 0.11 0.38 0.01 0.77
Mean SD 5 % 95 % HE p-value Mean SD 5 % 95 % HE p-value
Indonesia/Pakistan 0.60 0.08 0.51 0.76 −0.04 0.00 Indonesia/Pakistan 0.05 0.13 −0.11 0.26 0.00 0.65
Indonesia/Bahrain 0.39 0.05 0.30 0.48 0.39 0.26 Indonesia/Bahrain 0.33 0.19 0.08 0.65 0.15 0.76
Indonesia/Vietnam 0.67 0.11 0.56 0.88 −0.12 0.00 Indonesia/Vietnam 0.12 0.15 −0.06 0.35 0.10 0.48
Indonesia/Kuwait 1.00 0.00 0.99 1.00 0.01 0.00 Indonesia/Kuwait 0.02 0.00 0.01 0.02 0.01 0.99
Indonesia/Oman 0.31 0.05 0.26 0.41 0.41 0.03 Indonesia/Oman 0.41 0.16 0.04 0.59 0.01 0.00
South Korea/India 0.61 0.06 0.52 0.73 0.26 0.17 South Korea/India 0.45 0.04 0.41 0.52 0.27 0.56
South Korea/Indonesia 0.59 0.13 0.34 0.72 0.38 0.64 South Korea/Indonesia 0.34 0.10 0.23 0.54 0.14 0.97
South Korea/Malaysia 0.56 0.21 0.12 0.75 0.40 0.01 South Korea/Malaysia 0.33 0.23 0.11 0.81 0.14 0.27
South Korea/Philippine 0.63 0.06 0.52 0.70 0.25 0.17 South Korea/Philippine 0.43 0.05 0.37 0.51 0.26 0.80
South Korea/Taiwan 0.69 0.22 0.32 0.88 0.13 0.76 South Korea/Taiwan 0.45 0.20 0.25 0.79 0.40 0.71
South Korea/Thailand 0.63 0.10 0.44 0.74 0.26 0.50 South Korea/Thailand 0.41 0.08 0.30 0.56 0.25 0.74
South Korea/Bangladesh 0.53 0.06 0.44 0.59 0.51 0.00 South Korea/Bangladesh 0.04 0.06 −0.04 0.12 0.00 0.97
South Korea/Sri Lanka 0.64 0.03 0.59 0.67 0.27 0.00 South Korea/Sri Lanka 0.10 0.03 0.06 0.17 0.03 0.77
South Korea/Pakistan 0.70 0.04 0.65 0.76 0.18 0.00 South Korea/Pakistan 0.22 0.06 0.15 0.30 0.13 0.65
South Korea/Bahrain 0.48 0.10 0.22 0.57 0.58 0.93 South Korea/Bahrain 0.23 0.09 0.14 0.45 0.04 0.76
South Korea/Vietnam 0.80 0.03 0.75 0.85 0.11 0.00 South Korea/Vietnam 0.29 0.06 0.23 0.39 0.22 0.48
South Korea/Kuwait 0.98 0.00 0.97 0.99 0.03 0.00 South Korea/Kuwait 0.00 0.00 −0.01 0.00 0.00 0.99
South Korea/Oman 0.42 0.08 0.30 0.53 0.60 0.24 South Korea/Oman 0.25 0.03 0.19 0.31 0.04 0.00
Malaysia/India 0.54 0.22 0.32 0.95 −0.37 0.00 Malaysia/India 0.33 0.08 0.22 0.46 0.31 0.56
Malaysia/Indonesia 0.54 0.12 0.45 0.76 0.07 0.01 Malaysia/Indonesia 0.01 0.33 −0.38 0.54 −0.19 0.97
Malaysia/South Korea 0.44 0.21 0.25 0.88 −0.57 0.00 Malaysia/South Korea 0.34 0.05 0.27 0.40 0.33 0.81
Malaysia/Philippine 0.53 0.15 0.41 0.89 −0.31 0.00 Malaysia/Philippine −0.04 0.23 −0.39 0.34 −0.19 0.80
Malaysia/Taiwan 0.57 0.10 0.52 0.84 −0.23 0.00 Malaysia/Taiwan −0.16 0.37 −0.56 0.43 −0.67 0.71
Malaysia/Thailand 0.55 0.14 0.45 0.89 −0.19 0.00 Malaysia/Thailand −0.07 0.30 −0.46 0.42 −0.34 0.74
Malaysia/Bangladesh 0.41 0.14 0.20 0.66 0.05 0.00 Malaysia/Bangladesh 0.45 0.22 0.09 0.74 −0.42 0.97
Malaysia/Sri Lanka 0.57 0.15 0.42 0.83 −0.43 0.00 Malaysia/Sri Lanka −0.02 0.08 −0.14 0.13 0.02 0.77
Malaysia/Pakistan 0.63 0.17 0.39 0.91 −0.35 0.00 Malaysia/Pakistan 0.41 0.10 0.23 0.57 −0.06 0.65
Malaysia/Bahrain 0.27 0.22 0.00 0.70 0.11 0.20 Malaysia/Bahrain 0.78 0.17 0.46 1.00 −0.14 0.76
Malaysia/Vietnam 0.74 0.17 0.49 0.99 −0.22 0.00 Malaysia/Vietnam 0.49 0.15 0.26 0.69 −0.11 0.48
Malaysia/Kuwait 0.98 0.01 0.98 1.00 0.02 0.00 Malaysia/Kuwait 0.01 0.00 0.01 0.01 0.00 0.99
Malaysia/Oman 0.40 0.06 0.36 0.53 0.25 0.00 Malaysia/Oman −0.25 0.29 −0.60 0.21 −0.21 0.00
Philippine/India 0.47 0.06 0.39 0.58 0.17 0.33 Philippine/India 0.62 0.05 0.52 0.69 0.47 0.56
Philippine/Indonesia 0.50 0.13 0.24 0.63 0.34 0.58 Philippine/Indonesia 0.60 0.08 0.50 0.78 0.39 0.97
Philippine/South Korea 0.37 0.06 0.30 0.48 0.22 0.10 Philippine/South Korea 0.56 0.03 0.52 0.63 0.26 0.81
Philippine/Malaysia 0.47 0.15 0.11 0.59 0.47 0.12 Philippine/Malaysia 0.07 0.30 −0.24 0.81 −0.02 0.27
Philippine/Taiwan 0.64 0.19 0.29 0.87 0.22 0.23 Philippine/Taiwan 0.52 0.07 0.46 0.64 0.25 0.71
Philippine/Thailand 0.53 0.09 0.38 0.66 0.25 0.39 Philippine/Thailand 0.68 0.02 0.65 0.71 0.36 0.74
Philippine/Bangladesh 0.46 0.03 0.43 0.50 0.48 0.00 Philippine/Bangladesh −0.12 0.14 −0.35 0.10 −0.06 0.97
Philippine/Sri Lanka 0.57 0.06 0.50 0.66 0.19 0.00 Philippine/Sri Lanka 0.19 0.05 0.09 0.25 0.07 0.77
Philippine/Pakistan 0.60 0.03 0.56 0.64 0.19 0.00 Philippine/Pakistan 0.11 0.09 −0.01 0.27 0.08 0.65
Philippine/Bahrain 0.41 0.08 0.16 0.46 0.56 0.94 Philippine/Bahrain 0.07 0.23 −0.21 0.65 0.02 0.76
Philippine/Vietnam 0.67 0.04 0.61 0.74 0.10 0.00 Philippine/Vietnam 0.19 0.13 0.03 0.39 0.18 0.48
Philippine/Kuwait 0.98 0.00 0.98 0.99 0.02 0.00 Philippine/Kuwait 0.00 0.00 0.00 0.01 0.00 0.99
Philippine/Oman 0.31 0.03 0.24 0.36 0.59 0.18 Philippine/Oman 0.45 0.06 0.33 0.53 0.04 0.00
Taiwan/India 0.40 0.18 0.20 0.76 0.19 0.20 Taiwan/India 0.56 0.05 0.44 0.62 0.31 0.56
Taiwan/Indonesia 0.31 0.13 0.15 0.58 0.49 0.27 Taiwan/Indonesia 0.73 0.16 0.42 0.90 0.18 0.97
Taiwan/South Korea 0.31 0.22 0.12 0.68 0.05 0.44 Taiwan/South Korea 0.67 0.04 0.59 0.73 0.54 0.81
Taiwan/Malaysia 0.43 0.10 0.16 0.48 0.49 0.24 Taiwan/Malaysia −0.16 0.49 −0.64 0.79 −0.28 0.27
Taiwan/Philippine 0.36 0.19 0.13 0.71 0.19 0.16 Taiwan/Philippine 0.66 0.14 0.42 0.86 0.22 0.80
Taiwan/Thailand 0.33 0.18 0.13 0.66 0.29 0.18 Taiwan/Thailand 0.74 0.16 0.44 0.91 0.21 0.74
Taiwan/Bangladesh 0.43 0.05 0.38 0.54 0.56 0.00 Taiwan/Bangladesh −0.37 0.23 −0.69 −0.01 −0.14 0.97
Taiwan/Sri Lanka 0.50 0.16 0.33 0.74 0.07 0.00 Taiwan/Sri Lanka 0.27 0.09 0.17 0.41 0.02 0.77
Taiwan/Pakistan 0.55 0.12 0.42 0.75 0.13 0.00 Taiwan/Pakistan 0.04 0.18 −0.18 0.29 0.01 0.65
Taiwan/Bahrain 0.37 0.07 0.25 0.55 0.60 0.43 Taiwan/Bahrain −0.07 0.29 −0.43 0.50 −0.09 0.76
Taiwan/Vietnam 0.61 0.15 0.47 0.86 0.06 0.00 Taiwan/Vietnam 0.02 0.24 −0.28 0.37 −0.04 0.48
Mean SD 5 % 95 % HE p-value Mean SD 5 % 95 % HE p-value
Taiwan/Kuwait 0.97 0.01 0.96 0.98 0.04 0.00 Taiwan/Kuwait 0.00 0.00 0.00 0.01 0.00 0.99
Taiwan/Oman 0.20 0.12 0.07 0.42 0.58 0.14 Taiwan/Oman 0.60 0.24 0.16 0.88 −0.07 0.00
Thailand/India 0.47 0.09 0.34 0.62 0.13 0.14 Thailand/India 0.57 0.04 0.50 0.61 0.36 0.56
Thailand/Indonesia 0.47 0.07 0.32 0.56 0.33 0.87 Thailand/Indonesia 0.68 0.06 0.54 0.74 0.39 0.97
Thailand/South Korea 0.37 0.10 0.26 0.56 0.11 0.08 Thailand/South Korea 0.54 0.05 0.47 0.63 0.31 0.81
Thailand/Malaysia 0.45 0.14 0.11 0.55 0.45 0.31 Thailand/Malaysia 0.03 0.38 −0.34 0.85 −0.08 0.27
Thailand/Philippine 0.47 0.09 0.34 0.62 0.14 0.10 Thailand/Philippine 0.70 0.07 0.56 0.80 0.32 0.80
Thailand/Taiwan 0.67 0.18 0.34 0.87 0.21 0.06 Thailand/Taiwan 0.59 0.03 0.55 0.64 0.24 0.71
Thailand/Bangladesh 0.46 0.01 0.45 0.49 0.50 0.00 Thailand/Bangladesh −0.22 0.17 −0.47 0.05 −0.09 0.97
Thailand/Sri Lanka 0.56 0.08 0.47 0.69 0.15 0.00 Thailand/Sri Lanka 0.19 0.07 0.11 0.27 0.02 0.77
Thailand/Pakistan 0.59 0.05 0.52 0.68 0.14 0.00 Thailand/Pakistan 0.07 0.11 −0.08 0.21 0.04 0.65
Thailand/Bahrain 0.40 0.05 0.24 0.44 0.56 0.35 Thailand/Bahrain 0.05 0.21 −0.21 0.49 −0.01 0.76
Thailand/Vietnam 0.65 0.08 0.57 0.81 0.04 0.00 Thailand/Vietnam 0.13 0.16 −0.08 0.36 0.10 0.48
Thailand/Kuwait 0.97 0.00 0.96 0.97 0.05 0.00 Thailand/Kuwait −0.01 0.00 −0.01 −0.01 0.01 0.99
Thailand/Oman 0.29 0.03 0.26 0.34 0.54 0.12 Thailand/Oman 0.45 0.12 0.19 0.58 0.06 0.00

  1. SD, shows the standard deviation; HE, shows the hedge ratio.

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Supplementary Material

This article contains supplementary material (https://doi.org/10.1515/snde-2024-0116).

Received: 2024-10-19
Accepted: 2025-02-10
Published Online: 2025-03-24

© 2025 Walter de Gruyter GmbH, Berlin/Boston

https://doi.org/10.1515/snde-2024-0116
Keywords for this article
time-varying parameter vector autoregression; wavelet coherence; portfolio implications; Asian markets; US-China tension
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