By Ibrahim Ishmail, investment research analyst, Titan Square Mile
The IA Asia Pacific Excluding Japan is a unique sector. By definition, it is a broad equity category that provides investors with exposure to a region spanning both developed and emerging markets. In practice, that means an investment mandate can contain Taiwan’s semiconductor champions, China’s large and diversified economy, Australia’s resource and financial franchises, and India’s domestic growth story.
That breadth is both the sector’s appeal and its central challenge. According to the IA, the sector held around £45bn in assets under management as at end of February 2026, a figure that reflects a meaningful recovery in investor sentiment after a couple of years of outflows as capital rotated towards developed markets. The sector’s benchmark covers large- and mid-cap stocks across Asian markets outside Japan, and encompassing economies at different stages of development, operating under different political systems, monetary conditions and earnings cycles.
Two structural questions tend to dominate the sector. The first is technology. Asia ex Japan sits at the heart of the global semiconductor and electronics supply chain, with TSMC remaining a defining stock for the region and Samsung Electronics and SK Hynix central to the AI-driven memory and hardware cycle.
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The second is China. Despite moderating index weights reflecting a period of weaker growth, China remains very large, too consequential and too volatile to treat as a neutral allocation. A manager’s stance on China, whether bullish, cautious or outright underweight, remains one of the most significant differentiators in the peer group.
For fund selectors, this diversity is what makes the sector simultaneously compelling and demanding. Country allocation, sector exposure and style bias all matter enormously. Two funds sitting in the same peer group can hold almost entirely different portfolios, a manager leaning into semiconductors, India and large-cap quality will look nothing like one pursuing China recovery, Asean domestic demand or deep value. The ‘Asia’ label, in other words, is not an investment thesis. It is a label on a largely varied opportunity set.
Macro backdrop
Asia’s macro backdrop has become more resilient than many investors feared a year ago, even if risks remain elevated. Trade tensions remained a key concern for investors throughout 2025, particularly following the announcement of “Liberation Day” measures, but the regional fallout proved less severe than many had initially feared.
More broadly, Asia remains central to the global growth story. Despite heightened geopolitical tensions and trade headwinds through 2025 and into 2026, growth across the region remained resilient, helping to underpin sentiment and market performance in several of the markets represented within the sector.
At the country level, China remains a key driver of sentiment across the sector. Whilst the economy met its formal growth target last year, domestic demand remains less convincing. Consumption has yet to recover fully, reflecting ongoing weakness in the property market and subdued consumer confidence.
That said, there are growing signs that policymakers are placing greater emphasis on stimulating domestic demand in 2026, which could prove important for sentiment and for the broader regional outlook.
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One clear positive was the emergence of DeepSeek in January 2025, an open-source AI model that not only surprised Western observers but triggered a meaningful re-rating in Chinese technology stocks and reframed the debate about the country’s innovation capability. AI-focused names surged while the broader market remained more subdued: a reminder that gains in China can be selective rather than broad-based. Sentiment can shift quickly on China, in both directions, which is precisely what makes it such a consequential allocation decision.
India presents a different macro profile. The domestic consumption story remains broadly intact and, following the valuation compression seen in late 2024 and through 2025, the entry point looks considerably more attractive than it did at the peak. A stable interest-rate environment has supported credit growth and consumer demand, reinforcing India’s credentials as one of the sector’s most durable structural growth stories.
Elsewhere, monetary conditions across the region have become more accommodative, and a softer US dollar, if sustained, would provide an additional tailwind, given the well-established historical relationship between dollar weakness and Asian equity outperformance. Artificial intelligence remains the most visible structural driver, supporting semiconductor exporters in Taiwan, and feeding through into data centre demand across Malaysia and Singapore via ongoing hyperscaler capital expenditure.
For long-term investors, the opportunity set remains compelling. The sector still offers exposure to one of the fastest-growing parts of the global economy, even if it also demands careful navigation of trade-policy uncertainty, shifting sentiment towards China, and longer-term structural constraints, including the adverse demographic trends shaping the policy debate in Taiwan and South Korea.
How it has performed
The IA Asia Pacific ex Japan sector was among the strongest performing equity sectors of 2025, reflecting a remarkable recovery from the turbulent 2022-23 period when China’s regulatory crackdown and property market collapse weighed heavily on the sector.
Asian equity markets rebounded strongly through 2025, supported by renewed foreign investment and broad-based growth across technology, consumer goods, and financials – a marked turnaround after several years in which global headwinds and China’s prolonged slowdown had weighed on sentiment.
The AI theme was a decisive performance driver where names such as TSMC and Samsung Electronics experienced a strong year on the back of continued demand for producing the latest AI and memory chips. Active managers who held underweight positions in major technology names in Taiwan and South Korea faced a significant drag; those with concentrated, high-conviction technology exposure were rewarded handsomely.
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Looking into 2026, performance trends have become harder to read with confidence. Elevated volatility has at times favoured passive exposure, and the escalation of tensions in the Middle East during the first quarter added a new layer of uncertainty, unsettling global markets and contributing to more differentiated outcomes across strategies and styles.
What remains clear, however, is the longer-term case. The sector offers access to some of the fastest-growing economies in the world, to the companies building the infrastructure of the AI age, and to a consumer base of billions at an early stage of wealth accumulation. It also demands something in return: careful navigation, active judgement, and a genuine willingness to take views whether on China, on technology concentration, and on where in this vast and varied region the next chapter of growth will be written.
Funds to watch: Three-year performance
M&G Asian: This fund has been a strong performer in the Asia ex-Japan equity sector. The fund employs a distinctive philosophy in favour of deep independent research. The fund’s 50-80 stock portfolio focuses on business quality, industry dynamics, and valuation. The team’s factor-neutral, stock-specific approach emphasises risk-adjusted returns through high-conviction positions.
Royal London Asia Pacific ex Japan Equity Tilt: This fund aims to broadly track the performance of the FTSE World Asia Pacific ex Japan Index, while employing a light ESG overlay tilting the fund towards companies with stronger ESG credentials. Run by the passive & quantitative equities team at RLAM, the fund has a looser tracking error limit compared to other passives allowing the team to take small positions away from the benchmark. The fund aims to provide a lower carbon intensity than the benchmark, a better ESG profile, and to integrate with RLAM’s responsible investment practices. The managers achieve this by applying modest overweight and underweight positions in select stocks. The fund targets benchmark-like returns after fees over rolling three-year periods, offering investors a cost-effective, sustainability-conscious route to accessing Asia Pacific ex-Japan equities.
Ninety One Asian Equity: The NinetyOne Asian Equity fund, leverages the firm’s 4 factor investment process; a blend of quantitative screening and fundamental research, to identify mispriced opportunities across Asia ex-Japan. The strategy is style-agnostic, focusing on company-specific drivers rather than macro or thematic tilts. The fund follows a disciplined, high-conviction approach to capturing Asia’s long-term growth.
Funds to watch: Assets under management
Federated Hermes Asia ex-Japan Equity: This is a strategy looking to achieve capital appreciation over the long term. The manager’s investment philosophy is inherently contrarian and value biased investing right across the quality spectrum. The portfolio will also be invested in all sizes of company, typically in areas that are being ignored or which are inaccessible to more mainstream funds.
Fidelity Asia: This is a strategy that is run by a highly experienced manager with a long history of investing in Asia whilst being supported by well-resourced team of analysts based in the region. The fund aims to achieve capital growth over the long term through investments in mainly medium and large sized companies. The strategy follows a bottom-up approach, and the fund will comprise both global leaders in Asia as well as those that the manager believes have unrealised growth potential, improving operating fundamentals or that are well positioned to benefit from cyclical rotations in their industry
Jupiter Asian Income: This is a concentrated strategy of circa 30 to 40 holdings that seeks to provide income and capital growth over the long term. The lead manager is a very experienced investor, who essentially looks for quality dividend paying companies that can increase their dividends as they grow over time and growing companies where he can understand their business models and which, in his view, are both sustainable and scalable. He seeks to invest only in the most attractive opportunities, and for instance, is willing to have significant underweight positions to large index constituents, markets and sectors.
Funds to watch: Newcomers
L&G Future World ESG Tilted and Optimised Asia Pacific Index: This fund tracks the performance of the Solactive L&G Enhanced ESG Asia Pacific ex Japan Index. Managed by Legal & General Investment Management (LGIM), a leading passive investment provider, who work in partnership with the index provider Solactive to systematically integrate ESG considerations into the index construction process. The custom benchmark begins with the exclusion of companies on LGIM’s future world protection list (FWPL), as well as those who breach revenue thresholds from certain controversial activities, these exclusions typically remove 2–4% of the investable universe. The index then tilts the weightings of the remaining stocks based on LGIM’s ESG scores, favouring those which score well, enhancing the fund’s ESG profile while maintaining broad market exposure.
Man Asia (ex Japan) Equity Fund Professional: This fund is managed by a highly experienced investment team with a long-standing track record in Asian markets. Employing a flexible, style-agnostic approach, the strategy is built on the belief that markets tend to trade in line with forward earnings, and that alpha is best captured through stock dispersion and relative earnings revisions. As such, the fund’s performance and risk-return profile are primarily driven by stock-specific contributions. The team maintains flexibility to adjust country, sector, and industry exposures as opportunities arise, with the overarching goal of delivering a stable return profile while navigating the region’s dynamic market conditions.
abrdn Asia Pacific ex Japan Equity Tracker: This passive fund aims to track the MSCI AC Asia Pacific ex Japan Index, which provides broad exposure to large- and mid-cap companies across both developed and emerging Asian markets. The fund invests directly in all the index’s constituents via a full physical replication approach, ensuring highly accurate tracking. It is managed by the quantitative investment strategies team, which oversees a wide range of systematic and index-based solutions.
