ETF spotlight: Asia ex-Japan is up 26% this year — Here's why the rally may not be over

• Asia ex-Japan has rallied 26% YTD, outperforming major developed markets like the US and Europe, led by Taiwan and South Korea.

• We see further upside for the region, supported by semiconductor leadership, broadening AI adoption, and diversified earnings growth in markets like Singapore.

• The iShares Core MSCI Asia ex Japan ETF provides large- and mid-cap exposure across two developed markets, Hong Kong and Singapore, and eight emerging markets, including China, India, Indonesia, South Korea, Malaysia, the Philippines, Taiwan and Thailand. 

• While its 0.28% expense ratio is higher than some peers, stronger liquidity and a relatively low tracking difference make it a compelling choice for broad regional exposure.

In a previous ETF Spotlight article, we made the case for Japanese equities. The Nikkei 225 has continued its climb since then, and we remain constructive. The Japanese market is supported by resilient corporate earnings, AI-related tailwinds lifting technology and industrials, improving capital efficiency, and continued corporate governance reforms.

But Japan isn’t the only market in Asia that deserves investors’ attention. Asia ex-Japan equities have outperformed major global markets including the US and Europe, delivering a robust gain of 26% year-to-date (YTD) as of 1 September 2026. This outperformance has been led by markets such as Taiwan and South Korea, which have benefited from the ongoing AI infrastructure buildout and consequent demand for logic chips, memory chips and advanced packaging.

Beyond these near-term drivers, Asia ex-Japan offers a diverse range of structural growth opportunities, spanning semiconductor leadership, the broader adoption of AI across industries, and resilient growth across the financial sector. In this article, we explore why we remain positive on the region even after its strong YTD rally, and why the iShares Core MSCI Asia ex Japan ETF is our preferred ETF to gain broad-based passive exposure to these opportunities.

Figure 1: Asia ex-Japan equities post strong year-to-date returns

The case for Asia ex-Japan

Among the region’s key markets, South Korea is particularly well positioned to benefit from the ongoing AI infrastructure buildout, with its semiconductor leaders at the centre of the global memory supply chain. Samsung Electronics and SK Hynix together control more than 70% of the global HBM market, while strong AI demand, supply constraints and long-term customer agreements support the durability of the memory cycle. SK Hynix’s 2Q26 revenue surged 257% YoY, while Samsung’s semiconductor revenue rose 357%, highlighting the strong growth from higher-value memory products.

Beyond memory, South Korea’s advanced manufacturing and technology ecosystem offers additional upside. NVIDIA’s partnerships with Hyundai, LG and Naver are accelerating opportunities in physical AI, autonomous driving and AI applications, while domestic data-centre investment should further support demand across the AI supply chain. Capital market reforms under President Lee could also help narrow Korea’s valuation discount. Despite recent volatility, we believe the underlying fundamentals remain intact, with the memory cycle providing near-term earnings momentum and broader AI applications offering a longer-term growth catalyst.

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Alongside South Korea, Taiwan is home to the world’s leading pure-play foundry, Taiwan Semiconductor Manufacturing Company (TSMC). Its irreplaceable position in advanced chip manufacturing makes Taiwan one of the clearest beneficiaries of the ongoing AI infrastructure buildout. TSMC’s strong 2Q26 results, including a 77% YoY increase in net income, reinforced the strength of AI-related demand. Crucially, TSMC raised its 2026 revenue growth guidance from “more than 30%” to “slightly above 40%”, while management sees strong demand visibility through 2029–2030, supporting our view that the AI investment cycle has not peaked.

Importantly, Taiwan’s advantage extends well beyond TSMC. As AI chips become increasingly complex, bottlenecks are spreading across advanced packaging and testing, benefiting companies such as ASE Technology and King Yuan Electronics. NVIDIA also recently invested USD 3.5 billion in MediaTek, with the two companies expanding their collaboration on custom AI chips and AI computing platforms, further highlighting the growing importance of Taiwan’s broader semiconductor ecosystem.

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While Taiwan and South Korea have led the rally in Asia ex-Japan, China equities have underperformed their regional peers amid subdued consumer demand, a prolonged property downturn and uncertainty over policy support. Corporate earnings have also been pressured by intense price competition and heavy AI investment. That said, pockets of the market continue to benefit from powerful structural growth drivers, with early signs of AI monetisation emerging among platform companies.

China’s technology hardware sector is benefiting from the global AI infrastructure buildout, while US export controls are accelerating domestic semiconductor substitution and supporting local chipmakers like Cambricon Technologies and Hua Hong Grace Semiconductor. Meanwhile, competition among platform companies has moderated, with AI beginning to drive meaningful revenue growth. Alibaba’s AI Cloud and Compute Services revenue grew 45% YoY in its latest quarter, while Tencent’s Marketing Services revenue rose 22%, supported by AI-driven improvements in advertising.

Taken together, these trends give investors exposure to continued earnings momentum in China’s technology hardware sector, while depressed valuations provide scope for a potential recovery in platform companies.

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Singapore adds diversification to the region’s predominantly technology-driven growth story, with resilient banks and an increasingly important industrial sector. The banking sector remains a key pillar of the Straits Times Index (STI), supported by stabilising net interest income and continued strength in wealth management, with safe-haven flows amid ongoing geopolitical uncertainty providing further support for the sector. Meanwhile, industrials such as ST Engineering, Yangzijiang Shipbuilding, and Keppel are emerging as important earnings drivers, broadening the STI's earnings base beyond banks alone. This diversification helps offset a softer outlook for S-REITs, where higher-for-longer interest rates and narrower yield spreads warrant a more selective approach — reinforcing our constructive view on Singapore equities overall.

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Taken together, these markets offer complementary sources of growth across the region, from Korea and Taiwan’s semiconductor leadership to China’s structural AI opportunities and early signs of monetisation, and Singapore’s earnings stability and diversification. Investors seeking to capture these growth drivers across Asia ex-Japan in a diversified manner may consider the iShares Core MSCI Asia ex Japan ETF.

Introducing the iShares Core MSCI Asia ex Japan ETF

The iShares Core MSCI Asia ex Japan ETF (HKEX: 3010) seeks to track the performance of the MSCI All Country Asia ex Japan Index using a representative sampling investment strategy, where the fund invests in a subset of index constituents selected to closely mirror the index’s overall risk and return characteristics, rather than holding every security in the index.

The MSCI All Country Asia ex Japan Index provides large- and mid-cap exposure across two developed markets, Hong Kong and Singapore, and eight emerging markets, including China, India, Indonesia, South Korea, Malaysia, the Philippines, Taiwan and Thailand.

As of 31 August 2026, the fund’s largest geographical exposures are Taiwan (30.6%), South Korea (23.0%) and China (22.9%). Taiwan’s outsized weight is driven largely by TSMC, which accounts for 16.75% of the fund, while South Korea’s exposure is anchored by Samsung Electronics (8.95%) and SK Hynix (6.06%). This concentration reflects the AI and semiconductor themes discussed earlier.

The fund’s top 10 holdings similarly feature leading technology companies, alongside tech-adjacent names such as Tencent and Alibaba. While officially classified under Communication and Consumer Discretionary, respectively, both companies have significant cloud and AI-related businesses, giving them increasing exposure to the broader technology and AI growth cycle. At the sector level, this is reflected in the fund’s substantial 46.5% allocation to Information Technology, with Financials (17.7%) and Consumer Discretionary (8.6%) a distant second and third.

3010 follows a discretionary distribution policy, with dividends typically paid annually in November or December. As of 31 August 2026, the ETF’s trailing 12-month distribution yield stood at 0.87%, meaning it is better suited to investors seeking capital appreciation than those primarily focused on income.

Table 1: Top 10 holdings of 3010

Rank	Holding Name	Sector	Weight (%)
1	Taiwan Semiconductor Manufacturing	Information Technology	16.75
2	Samsung Electronics Ltd	Information Technology	8.95
3	SK Hynix	Information Technology	6.06
4	Tencent Holdings	Communication	3.18
5	Alibaba Group Holding	Consumer Discretionary	2.2
6	MediaTek	Information Technology	1.6
7	DBS Group Holdings Ltd	Financials	1.12
8	Delta Electronics	Information Technology	1.01
9	China Construction Bank Corp	Financials	0.92
10	AIA Group	Financials	0.90
		Total	42.69
Source: BlackRock website Data as of 31 August 2026

Figure 2: Geographical breakdown of 3010

Figure 3: Sector breakdown of 3010

With a total expense ratio of 0.28%, 3010 does carry higher fees than some of its peers, such as the Franklin FTSE Asia ex Japan ETF (0.19%) and the UBS MSCI AC Asia ex Japan SF UCITS ETF (0.23%). However, we still like it for its stronger liquidity profile, as measured by its high 90-day average daily volume and a tight 0.16% bid-ask spread. This allows investors to enter or exit positions more efficiently and at more favourable prices. It also has one of the lowest tracking differences among peers, indicating that it tracks the index relatively closely.

Balancing its higher expense ratio against superior liquidity and relatively tight tracking, we believe 3010 remains a compelling choice for investors seeking diversified exposure to Asia ex-Japan's growth story.

Table 2: Comparison against other peers

Name of ETF	Expense Ratio (%)	AUM	Bid-ask Spread (%)	90D Average Volume (‘000)	3Y Tracking Difference (%)	Inception Date
iShares Core MSCI Asia ex Japan (HKEX: 3010)	0.28	USD 4.57B	0.16	3,000	-2.60	12 Mar 2009
Amundi MSCI AC Asia Ex Japan UCITS ETF (LSE: APEX)	0.50	EUR 398.19M	0.34	14.3	-2.78	7 Dec 2020
Franklin FTSE Asia ex Japan ETF (NYSE: FLAX)	0.19	USD 58.65M	0.33	9	-3.82	6 Feb 2018
UBS MSCI AC Asia ex Japan SF UCITS ETF (LSE:UC48)	0.23	USD 1.06B	0.42	16.8	-0.36	23 Jun 2017
Source: Bloomberg Finance L.P., iFAST Compilations Data as of 1 September 2026

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.