Immune or Vulnerable? African Stock Markets’ Response to U.S.–China Trade Wars and Geopolitical Tensions

This study investigates the dynamic impact of the U.S.- China trade war and geopolitical risks on African stock market returns. Accordingly, we employed Wavelet Coherence analysis and Quantile Vector Autoregression (QVAR) model to capture both time-frequency dynamics and regime-specific connectedness. Utilizing data from seven major African exchanges, representing over 95% of the continent’s market capitalization, alongside the Geopolitical Risk (GPRI) and U.S.-China Trade Tension (UCTI) indices from January 2007 to February 2024, our findings reveal that African markets are not immune but exhibit state-dependent vulnerability. The Wavelet Coherence results show that co-movement clusters around major events, with shocks leading African market returns, particularly at medium-to-long-term horizons. The QVAR analysis uncovers strong asymmetries: U.S.–China trade tensions (UCTI) dominate as the primary shock transmitter during calm market regimes, while geopolitical risk (GPRI) becomes paramount during crisis periods. Across all regimes, the Johannesburg Stock Exchange (JSE) acts as a net transmitter of shocks, whereas the Nigerian Exchange (NGX) is the largest net receiver, highlighting divergent vulnerabilities within the continent.