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13 Jun 2019

The Trade War Impact Indicator

Another bout of market volatility followed hot on the heels of the latest escalation in the trade war between the US and China, but was the impact universal or did some markets fare better than others? Chanchal Samadder investigates.

The most recent period of volatility left me wondering which markets might be most vulnerable should the conflict continue, so I created my “Trade War Impact Indicator”. This simple tool combines the trade balance of the world’s 20 largest economies (in GDP terms) with the US and the economic origins of each country index’s revenues1 to create a trade impact score. The results were very interesting.

5 things to know

  • India has one of the highest revenue exposures to the US among the emerging markets, but it’s counterbalanced by a relatively small trade deficit.
  • India is less exposed to China than most of its peers and more driven by domestic demand. These factors should help insulate it from any trade-related global slowdown.
  • At the other end of the spectrum, Taiwan has a significant exposure to both the US and China and, not for the first time, looks in a precarious position.
  • Brazil, Russia, Indonesia and Australia appear relatively safe, but they do generate enough revenue from China to feel the pain of any economic slowdown.
  • China itself holds a surprisingly low revenue exposure to the US and, Trump take note, scores well on the impact indicator overall* .

*This is partly due to the unique structure of the country’s equity market and the way stock price gyrations tend to reflect market liquidity and demand, not corporate value. The model does not take potential spillovers to other EM countries into account 

Detailed results  

Country Imports from US $m  Exports to US  $m Trade deficit $m GDP $ bn Deficit as % of GDP Exports as % of GDP MSCI Equity Index
% revenue exposure
to the US
MSCI Equity Index
% revenue exposure
to China
Trade war market
Impact indicator
Mexico 265,010 346,528 -81,517 1,220 -6.68% 28.40% 9.54% 1.14% 27.10
Taiwan 30,243 45,762 -15,519 586 -2.65% 7.81% 26.95% 21.36% 21.05
Switzerland 22,231 41,138 -18,908 703 -2.69% 5.85% 30.04% 7.75% 17.58
Germany 57,654 125,904 -68,250 4,000 -1.71% 3.15% 21.76% 8.48% 6.85
South Korea 56,344 74,291 -17,946 1,620 -1.11% 4.59% 13.49% 12.63% 6.19
United Kingdom 66,228 60,812 5,416 2,828 0.19% 2.15% 23.45% 10.63% 5.04
EU 318,619 487,916 -169,296 18,750 -0.90% 2.60% 18.29% 7.24% 4.76
Japan 74,967 142,596 -67,630 4,970 -1.36% 2.87% 14.08% 7.56% 4.04
France 36,326 52,522 -16,195 2,775 -0.58% 1.89% 19.16% 7.65% 3.63
Malaysia 12,865 39,384 -26,519 354 -7.49% 11.13% 3.05% 3.09% 3.40
India 33,120 54,407 -21,287 2,720 -0.78% 2.00% 13.04% 3.02% 2.61
Italy 23,153 54,722 -31,569 2,072 -1.52% 2.64% 9.16% 2.63% 2.42
Spain 12,976 17,241 -4,266 1,425 -0.30% 1.21% 11.70% 2.51% 1.42
Thailand 12,588 31,900 -19,312 487 -3.97% 6.55% 1.84% 2.19% 1.21
China 120,341 539,503 -419,162 13,400 -3.13% 4.03% 1.90% 93.51% 0.76
Brazil 39,494 31,161 8,333 1,868 0.45% 1.67% 4.50% 5.73% 0.75
Australia 25,306 10,126 15,181 1,420 1.07% 0.71% 9.42% 9.52% 0.67
Russia 6,668 20,795 -14,128 1,630 -0.87% 1.28% 4.11% 3.50% 0.52
Indonesia 8,226 20,870 -12,643 1,022 -1.24% 2.04% 0.28% 0.75% 0.06
USA 1,521,088 20,000 7.61% 62.38% 6.80% 28.61

Source: Trade data: US Census Bureau; GDP data: IMF; Economic exposure: MSCI, data as of end 2018. Past performance is not a reliable indicator of future returns.

Trade war market impact indicator: A high trade impact score points to a high exposure of the country’s to both the US and China and therefore indicates a higher vulnerability to trade disruptions and vice-versa.

1 The economic exposure of a company to a target region or country is the proportion of revenues derived from that region. MSCI estimates economic exposure from the geographic segment distribution of revenues by final markets/ destination as reported by a company and the GDP weight of the emerging market countries within that segment.

How to reduce your sensitivity to China

There are ways to mitigate the effects trade tensions could have on your EM portfolio. According to our analysis, replacing 20% of your global EM portfolio with a 20% allocation to MSCI India could help reduce the overall level of risk and create more return potential too. 


Source: MSCI, Bloomberg, Lyxor International Asset Management, data as at 12/06/2019.

Historical volatility calculated on 90 days daily returns. *sample period 31/12/2013 to 12/06/2019. Past performance is no guarantee of future returns.

If like us, you believe India should have a greater weight in EM equity allocations, why not consider our MSCI India ETF? It is the best-performing ETF in this universe and comes with the lowest tracking error in Europe. 

Risk Warning​

This document is for the exclusive use of investors acting on their own account and categorised either as “Eligible Counterparties” or “Professional Clients” within the meaning of Markets in Financial Instruments Directive 2014/65/EU. These products comply with the UCITS Directive (2009/65/EC). Société Générale and Lyxor International Asset Management (LIAM) recommend that investors read carefully the “investment risks” section of the product’s documentation (prospectus and KIID). The prospectus and KIID are available free of charge on, and upon request to

Except for the United-Kingdom, where this communication is issued in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by the Financial Conduct Authority in the UK under Registration Number 435658, this communication is issued by Lyxor International Asset Management (LIAM), a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2014/91/EU) and AIFM (2011/61/EU) Directives. Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority).

The products mentioned are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on the London Stock Exchange, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them. Updated composition of the product’s investment portfolio is available on In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed.

Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice. It is each investor’s responsibility to ascertain that it is authorised to subscribe, or invest into this product. This document is of a commercial nature and not of a regulatory nature. This material is of a commercial nature and not a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.

Research disclaimer

Lyxor International Asset Management (“LIAM”) or its employees may have or maintain business relationships with companies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see appendix at the end of this report for the analyst(s) certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure website

Conflicts of interest 

This research contains the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) Cross Asset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues from management fees and investment advisory fees and distribution fees.

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