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Asia and emerging markets sector review – growth opportunities galore?

We look at how Asian and emerging stock markets have performed, what could be next for the sector and the potential growth opportunities on offer.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Joseph Hill
Senior Investment Analyst

Published on 17 May 2023

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

2022 was a difficult year for many Asian markets with a combination of slowing growth, rising interest rates and a strong US Dollar posing challenges. But with the International Monetary Fund (IMF) forecasting the region to grow by 4.6% in 2023, compared to global growth of 2.8%, the prospects look brighter.

While Asian markets are often lumped together, they can behave quite differently. Some countries in the region are rich in commodities and natural resources, while some rely on exporting goods to western economies, and others have vibrant local consumer-driven growth.

Although the region’s export-focused economies continue to face headwinds from sluggish global growth, economies across Asia are set to benefit from the China re-opening effect. This follows a prolonged period of depressed economic activity. The rebound should be most evident in consumer goods and tourism as consumers make up for lost time.

Pinpointing when the direction for global interest rates will change is near impossible. However, it’s highly likely we’ve already seen the bulk of rate rises in this cycle. Reaching the peak or seeing rates start to fall later this year could provide a tailwind for share prices by taking pressure off local Asian policy rates, bond yields and currencies.

There are plenty of growth opportunities in Asia, but there can be a big difference in standards in areas like corporate governance. This can expose investors to a higher risk of nasty surprises.

This article isn’t personal advice. If you’re not sure whether an investment is right for you, ask for financial advice.

How have stock markets performed?

Over the year to the end of April 2023, the emerging stock market has fallen by 5.78%*, while the Asia Pacific ex Japan market lost 5.42%. This compares with a gain of 3.24% for the broader global stock market. As always past performance isn’t a guide to future returns.

Performance of the underlying markets has been mixed though. Singapore has been the strongest of the main markets with a gain of 4.69%. On the other hand, China has been the weakest, losing 10.54%.

Asian and emerging stock markets – one year performance

Past performance isn’t a guide to the future. Source: *Lipper IM, to 30/04/2023.

Annual percentage growth
	Apr 18 – Apr 19	Apr 19 – Apr 20	Apr 20 – Apr 21	Apr 21 – Apr 22	Apr 22 – Apr 23
FTSE Asia Pacific ex Japan	2.68%	-5.57%	37.38%	-7.22%	-5.42%
FTSE China	-4.73%	-3.95%	37.92%	-29.46%	-10.54%
FTSE Emerging	3.23%	-8.66%	33.94%	-5.98%	-5.78%
FTSE India	6.47%	-17.87%	41.22%	30.25%	-6.99%
FTSE Korea	-13.43%	-7.20%	67.71%	-16.95%	-9.72%
FTSE Singapore	-1.84%	-16.76%	22.05%	17.60%	-4.69%
FTSE World	11.69%	-1.00%	33.87%	6.09%	3.24%

If you’re looking to invest in emerging markets and are happy with the higher risks that come with investing in the region, a broad global emerging markets or Asian fund could be a good starting point. Other funds could then be added to a portfolio for more exposure to a particular theme, area, or country. When investing here though, it’s essential to take a long-term view.

How have Wealth Shortlist funds performed?

Asian and emerging markets Wealth Shortlist funds have delivered mixed performance over the year. We usually expect this. A range of managers with different strengths, styles and areas of focus will perform differently in different economic conditions.

Remember, past performance isn’t a guide to the future, and performance here is over a short time. All investments fall as well as rise in value, so you could get back less than you invest.

Investing in funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.

For more details on each fund and its risks, please see the links to their factsheets and key investor information below.

Asia

The strongest performer of our Asian Wealth Shortlist funds over the last year has been the Jupiter India fund.

The fund invests in companies of all sizes but invests more in higher-risk small and medium-sized companies than some other India funds. The fact the manager invests differently gives it the potential to perform better than the Indian market, though the reverse is also true.

The weakest performer of our Asian Wealth Shortlist selections over the last year was the iShares Pacific ex Japan Equity Index fund.

The fund invests in a broad spread of companies based across the developed Asia and Pacific region, including Australia, Hong Kong and Singapore, as well as less mature economies like Taiwan and Malaysia.

Annual percentage growth
	Apr 18 – Apr 19	Apr 19 – Apr 20	Apr 20 – Apr 21	Apr 21 – Apr 22	Apr 22 – Apr 23
Jupiter India	-8.04%	-23.56%	27.98%	31.63%	2.27%
FTSE India	6.47%	-17.87%	41.22%	30.25%	-6.99%
iShares Pacific ex Japan Equity	2.10%	-6.92%	43.87%	-0.59%	-4.52%
FTSE World Asia Pacific ex Japan	2.46%	-7.16%	45.66%	-1.08%	-4.83%

Past performance isn’t a guide to the future. Source: Lipper IM, to 30/04/2023.

More about Jupiter India, including charges

Jupiter India Key Investor Information

More about iShares Pacific ex Japan Equity Index, including charges

iShares Pacific ex Japan Equity Index Key Investor Information

Emerging markets

The strongest performer of our Wealth Shortlist selections in the emerging markets sector over the last year was the Schroder Asian Discovery fund, though it still lost money.

The fund invests in smaller businesses based in Asian and emerging markets or that make most of their money in these areas. These businesses offer lots of growth potential. However, they're higher risk because they're at an earlier stage of their development. They also haven't tended to hold up as well in a falling market.

The weakest performer of our Wealth Shortlist selections in the emerging markets sector over the last year was the iShares Emerging Markets Equity index fund. The fund invests in a broad spread of companies based across emerging countries, including China, Taiwan, India and Hong Kong.

Annual percentage growth
	Apr 18 – Apr 19	Apr 19 – Apr 20	Apr 20 – Apr 21	Apr 21 – Apr 22	Apr 22 – Apr 23
Schroder Asian Discovery	-3.07%	-16.78%	52.53%	-3.63%	-2.54%
iShares Emerging Markets Equity Index	2.31%	-7.92%	30.75%	-6.47%	-5.09%
FTSE Emerging	3.23%	-8.66%	33.94%	-5.98%	-5.78%

Past performance isn’t a guide to the future. Source: Lipper IM, to 30/04/2023.

More about Schroder Asian Discovery, including charges

Schroder Asian Discovery Key Investor Information

More about iShares Emerging Markets Equity Index, including charges

iShares Emerging Markets Equity Index Key Investor Information

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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.