Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

Southeast Asia is starting to look like something of a haven as tensions surrounding North Korea swirl.

Last week, when Donald Trump threatened to unleash fire and fury on Pyongyang, export-oriented North Asia was hit the hardest, with the Kospi Index and Hong Kong's Hang Seng down 3.2 percent and 3.5 percent respectively over a three-day period. Reaction in Indonesia, Thailand and the Philippines was relatively muted.

Split Picture
Markets in North Asia were more affected by Donald Trump's promise to unleash fire and fury if the isolated nation continues its provocations
Source: Bloomberg
Note: In U.S. dollar returns over four-day period from Aug. 8, 2017.

This response can't just be explained away by geopolitical risk. Markets in North Asia have always been more sensitive to movements in the U.S. Regression analysis using five years of daily trading data shows that fluctuations in the S&P 500 Index can explain about 18 percent of returns in South Korea and Taiwan. For every one percentage point fall in the S&P 500, we can expect the Kospi Index to decline by 0.4 percentage points.

Ties That Bind
Equity markets in North Asia are more sensitive to movements in the S&P 500 Index
Source: Bloomberg
Note: Chart shows R-squared from regressions of daily Asia market returns on S&P daily returns.

This is because North Asia is more exposed to global economic conditions. Whereas publicly listed companies in Indonesia, the Philippines and Thailand generate 4 percent, 9 percent and 20 percent of their revenue from overseas respectively, firms in South Korea and Taiwan get 40 percent and 60 percent of their sales abroad. About 13 percent and 21 percent of those corporations' goods and services are destined for North America, so when demand in the U.S. wanes, the Kospi and Taiwan's Taiex Index experience some weakness.

Haven Assets
Invest in Southeast Asia and you're mainly buying a domestic story
Source: MSCI, HSBC

Hong Kong is arguably in the most precarious position, being pulled by the U.S. on one side and pushed by China on the other. (Shanghai is surprisingly insulated: movements in the S&P 500 can only explain an average two-percentage-point change in the Shanghai Stock Exchange Composite Index.)

Over the past 12 months, for every one percentage point increase in the S&P 500, the Hang Seng Index rose 0.48 percent. But if the Shanghai Stock Exchange Composite Index falls, markets in Hong Kong dip by an average 0.52 percentage points, regression analysis shows.

Dual Play
Stocks in China have outperformed those in Southeast Asia this year
Source: Bloomberg

Perhaps this explains why Southeast Asia and India are the more expensive markets: When foreign investors buy emerging Asia stocks, they hope to gain exposure to Asia's burgeoning middle class rather than companies whose fortunes are more closely tied to their home economies.

With each day bringing fresh headlines detailing North Korea tensions, perhaps it's time for money managers to give Southeast Asia a closer look.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shuli Ren in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at