The Recovery of an Asset Class
Both the Asia ex Japan and the Emerging Market asset classes are dominated by four countries. Namely China, Taiwan, South Korea and India. The top ten index weights in the latter index are all Asian companies. These two asset classes are essentially twins.
In the decade to October 2022, the World Index achieved a compound growth rate of 8.93%. Asia ex Japan managed just 2.41% and the EM Index only 1.12%. It was a lost decade for both asset classes – painful for managers and clients alike as investors deserted both.
The shares outstanding in the US listed iShare Asia ex Japan Index more than halved between mid 2021 and mid 2024 as capitulation accelerated, while the shares outstanding in the US listed iShare EMF Index fell by two thirds between early 2013 and early 2025.
Things may be looking up. Since the global market bottom in October 2022 both Asia ex and EM indices have outperformed the World Index. They have compounded at nearly 25% while the World Index has achieved a little over 20%. There has been a very modest uptick in the shares outstanding in both ETFs but one almost needs a magnifying glass to see this.
Events over the last five days in the Middle East have seen equities fall sharply, especially in Asia. South Korea has fallen 18.4%, Taiwan 7.3% and the Hang Seng Index 5.2%. India has fared better, -2.8%, but the market was closed today. The North Asian markets have powered the region higher year to date so a correction from record highs is not unsurprising.
That said, the successful strikes on energy facilities, coupled with the effective closure of the Strait of Hormuz, were unexpected developments and have caused oil and gas prices to rise sharply. Not great news in the short term for energy hungry Asia. Further scares, and more volatility, is to be expected. However, taking a longer-term view, we believe this downturn represents an excellent chance for investors to open or increase exposure to both asset classes.
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