Asia Ex-Japan (AxJ)

What Is Asia ex-Japan (AxJ)?

Asia ex-Japan (AxJ) refers to the economic region of countries located in Asia, but not including Japan. These countries are generally considered emerging markets and are of interest to investors looking for high-growth investment opportunities. Meanwhile, Japan is often considered to be a developed economy.

Key Takeaways

  • Asia ex-Japan (AxJ) involves the Asian economic region but excludes Japan.
  • Many Asian countries are considered to be emerging or developing markets, which many investors find attractive as growth drivers.
  • Because Japan is a developed economy, emerging markets investors interested in the region would not want to hold securities from an advanced and mature economy.
  • Several benchmark indices and ETFs are available that track AxJ.

Understanding Asia Ex-Japan (AxJ)

Asia ex-Japan is a popular strategy with numerous indexes and funds. These countries comprise a significant portion of the world’s emerging market countries.

Emerging market countries are of interest to investors because of their potential for growth. These countries are seen to be in a high growth phase. Emerging market analysis typically considers macroeconomic conditions, rapidly increasing GDP rates, political stability, legal property rights, capital processes, and trading and settlement procedures when classifying a country as an emerging market. 

Asia’s emerging market countries have been exporting more commodities and increasing electronic manufacturing. Growth in China specifically has also been escalating with leading innovation and growing adoption of new financial technology offerings. Asia’s growing middle class has also been a significant factor for the region’s growth. Mutual funds that are classified as Asia ex-Japan seek to focus on stocks in these countries exhibiting high growth potential.

Japan is excluded from investment strategies focused on Asia because it is a highly developed economy. As the only developed economy in Asia, companies in the country will be found in developed market indexes alongside the stocks of Europe, the U.S. and Canada.

Asia Ex-Japan Indexes

To invest in the emerging market countries in the Asia ex-Japan universe many investors may look to indexes for passive management approaches. Top indexes include the MSCI All Country Asia ex-Japan Index, the FTSE Asia ex-Japan Index and the Markit iBoxx USD Asia ex-Japan Index.

Asia Ex-Japan Funds

Both equity and bond mutual funds are managed to include securities from countries in the Asia ex-Japan region. Two of the categories top performing funds are included below.

Morgan Stanley Asia Opportunity Fund

The Morgan Stanley Asia Opportunity Fund has a five-year average annual return of 12.02% as of April 20, 2022. The return for its benchmark, the MSCI All Country Asia ex-Japan Index, was 6.75% for the same timeframe. The Fund is actively managed and seeks to invest in top companies from the Asia ex-Japan universe. As of March 31, 2022, its greatest allocations were to consumer discretionary and financials.

Fidelity Emerging Asia Fund

The Fidelity Emerging Asia Fund has a one year return of -32.66% through March 2022. The comparable one year return for the MSCI All Country Asia ex-Japan Index during the same timeframe was -14.64%. The Fund primarily invests in Asian emerging market companies. As of March 31, 2022, 85% of the Fund was invested in Asian emerging market equities with 47% of that invested in China. Top holdings through March 31, 2022 were Alibaba Group, Taiwan Semiconduct, Meituan, and Samsung.

Article Sources

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  1. Morgan Stanley. "Asia Opportunity Fund."

  2. Fidelity. "Fidelity Emerging Asia Fund."

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