Explore Asia Ex-Japan (AxJ): Unlocking High-Growth Markets Beyond Japan

Daniel Rathburn, an Investopedia editor specializing in tax, accounting, regulatory, and cryptocurrency insights, guides us through Asia Ex-Japan's investment landscape.

What Is Asia Ex-Japan (AxJ)?

Asia Ex-Japan (AxJ) represents the group of Asian countries excluding Japan, primarily emerging markets that attract investors seeking rapid economic growth. Unlike Japan’s developed economy, AxJ countries are characterized by their expanding markets and growth potential.

Key Insights

• AxJ encompasses Asian economies excluding Japan, focusing on emerging markets.
• These countries are often viewed as engines of growth by investors.
• Japan's mature economy is excluded to maintain focus on high-growth emerging markets.
• Numerous benchmark indices and ETFs track the performance of AxJ markets.

Understanding Asia Ex-Japan’s Investment Appeal

AxJ is a favored investment strategy featuring a wide array of indices and funds. These countries form a large segment of the global emerging market universe, offering promising growth driven by macroeconomic progress, rising GDP, political stability, and improving financial infrastructure.

Key drivers include increased commodity exports, expanding electronics manufacturing, and China’s rapid innovation and fintech adoption. The burgeoning middle class across these nations further fuels economic expansion. Funds targeting AxJ aim to capitalize on stocks with strong growth trajectories within these markets.

Japan is excluded due to its status as the sole developed Asian economy, typically grouped with other developed markets like the U.S., Europe, and Canada.

Leading Asia Ex-Japan Indexes

Investors often use passive investment vehicles tracking AxJ, such as the MSCI All Country Asia ex-Japan Index, FTSE Asia ex-Japan Index, and Markit iBoxx USD Asia ex-Japan Index, to gain exposure to this diverse emerging market region.

Top Asia Ex-Japan Investment Funds

Both equity and bond mutual funds focus on AxJ securities. Noteworthy examples include:

Morgan Stanley Asia Opportunity Fund

Delivering a five-year average annual return of 12.02% as of April 2022, this actively managed fund outperformed its benchmark MSCI All Country Asia ex-Japan Index, which returned 6.75%. The fund emphasizes consumer discretionary and financial sectors.

Fidelity Emerging Asia Fund

Despite a challenging one-year return of -32.66% through March 2022, compared to the MSCI AxJ Index’s -14.64%, this fund invests predominantly in Asian emerging market equities, with 47% allocated to China. Key holdings include Alibaba Group, Taiwan Semiconductor, Meituan, and Samsung.

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