Asian equity funds: What’s inside, key risks & how to choose
Asian equity funds provide investors with exposure to one of the world’s most vibrant, exciting and dynamic regions. The managers of these portfolios invest in the shares of companies listed on stock markets across Asia, including China and India.
But how do you find the best Asian equity funds? What do you need to know about investing in these areas, and are the prospects attractive?
Baillie Gifford Pacific
Equity
Federated Hermes Asia ex Japan Equity
Equity
Fidelity Asia Pacific Opportunities
Equity
Fidelity Asian Smaller Companies
Equity
FSSA Asia Focus
Equity
Invesco Asian
Equity
JPM Asia Growth
Equity
M&G Asian
Equity
Man Asia (ex Japan) Equity
Equity
Matthews Pacific Tiger
Equity
Schroder Asian Alpha Plus
Equity
Key takeaways:
- Asian equity funds own shares in companies listed on Asian stock markets.
- This region’s economies are growing faster, and its middle classes are expanding.
- Corporate governance standards can differ enormously between countries.
- They can be more volatile investments that require longer time horizons.
- You can invest in broad Asian funds or single-country portfolios.
What are Asian equity funds?
Asian equity investment funds are pooled investments that own shares in companies listed on various Asian stock markets. They can provide UK investors with access to areas that are traditionally difficult to access through individual share dealing. The investment category embraces both developed Asian markets, such as Hong Kong and Singapore, as well as emerging areas, including China, India and Taiwan. In most cases, Japan funds are treated as a separate entity because it’s well established and large enough to have its own category.
Why UK investors look at Asia
One of the reasons investors are drawn to Asian equity funds is the region’s potential, which is expected to contribute the lion’s share of global growth – around 60% – in 2026.
- Diversification
- Faster economic growth
- Expanding middle-class populations
- Growing levels of consumer spending
- Access to important global themes
What’s typically inside an Asian equity fund?
Asian equity funds typically invest in companies listed on stock markets in the region. However, Asian equity investment funds differ from one another depending on their objectives. For example, an Asian fund that embraces a wide selection of geographic exposures is likely to look very different from a single-country portfolio. That’s why it’s important to know the various sub-categories when it comes to choosing between various Asian equity investment funds.
Sub-categories within Asian equity funds
The phrase ‘Asian equity funds’ is an umbrella term that covers a multitude of investment countries, sectors, companies and philosophies.
Pan-Asian and Asia Pacific funds
Pan-Asian funds generally focus exclusively on countries in mainland Asia, such as China, India, South Korea, and Taiwan. Asia Pacific ex-Japan, meanwhile, has a slightly broader geographic remit. This means they can embrace the Oceania region, namely Australia and New Zealand.
Single-country and regional funds
You can take a more focused, tailored approach to investing in Asia by focusing on single-country and regional funds. For example, the various sectors include IA India/India Subcontinent, IA China/Greater China, and IA Japan, as well as the broader IA Asia Pacific, including Japan.
Income and specialist funds
You can also opt for Asian equity funds with specific goals. For example, there are portfolios that concentrate on companies that pay dividends to their investors. There are also funds specialising in certain company sizes, as well as those that apply environmental, social and governance factors to their stock picking.
Active vs passive in Asian equities
Active funds encourage their managers to seek opportunities to outperform the overall stock market benchmark. Passive funds, meanwhile, aim to replicate their performance. Passive Asian equity ETFs often track indices such as the MSCI AC Asia ex Japan Index or the MSCI AC Asia Pacific ex Japan Index. These provide investors with broad exposure at low cost.
However, we see clear limitations in a purely passive approach to Asian equities. Market indices can be heavily concentrated in a small number of mega-cap companies, particularly within the technology sector, which can skew portfolio exposure and reduce diversification.
This is where active management can add meaningful value. Asian markets remain highly diverse, complex, and in many areas under-researched, creating opportunities for skilled managers to uncover mispriced businesses and overlooked growth stories. A selective, research-driven approach can help investors access opportunities beyond the index and position portfolios to benefit from long-term structural trends across the region.
The biggest risks to understand
Many fast-developing sectors and companies in emerging areas may suffer growing pains that can affect how useful they are for investors. Regulatory changes, political instability and governance issues are among the main challenges for fund managers to tackle in this area of the market.
Let’s look at each in more detail.
Currency risk
Most Asian companies operate in their own local currencies, though some currencies are pegged to the US dollar, meaning they are closely tied to the dollar’s value rather than moving freely. This matters for UK investors because fluctuations between sterling and Asian currencies can boost or reduce returns when investments are converted back into pounds.
Geopolitical and country risk
Political problems can affect Asian equity funds. For example, regulatory changes in China can have a particular impact on portfolios that are heavily weighted towards the country.
Concentration and index risk
It’s important to know how much exposure various Asian equity funds have to different countries, sectors and industries. You may believe you have broad-based exposure, but the reality could be that a significant amount of assets under management are only in a handful of areas.
Governance and disclosure risk
Many of these countries are emerging, so corporate governance standards and financial reporting transparency can vary widely.
Volatility and liquidity risk
Asian markets tend to be more volatile, particularly those in emerging markets. Smaller stock markets can also be less liquid, posing challenges for fund managers at times. It’s why an extended investment horizon, say up to seven years, might be needed for anyone wanting to put money into this area.
How to choose an Asian equity fund
Define your objective
What are you trying to achieve? For example, do you want exposure to growth stocks or another source of revenue? Is the goal to inject diversification into your overall portfolio? Learn more about how to make an investment.
Check the geographic remit and country mix
There are different types of Asian equity funds. Be clear on your preferred approach. Do you want broad-based exposure to the entire region – or more focused investments in, say, China?
Understand the investment style
There are many different investment styles. For example, some managers of Asian equity funds will prefer to invest in rapidly growing businesses of tomorrow. Others, meanwhile, will favour more established dividend-paying businesses. Similarly, one manager may prefer a concentrated approach, while another will have a larger number of holdings.
Assess the manager and team
The managers at the helm are very important. Their knowledge, expertise and abilities will largely dictate the level of returns you’ll enjoy. Have they got experience in managing Asian equity investment funds in different market conditions? Is their track record strong? Do they have the resources of a major fund house behind them?
Review the funds currency policy
Currency policy is an important driver of outcomes in Asian equity funds, particularly given the region’s cross-border exposure and currency volatility. Unhedged funds leave foreign exchange exposure in place, meaning investors are fully exposed to movements in Asian currencies versus their home currency. Hedged funds, by contrast, aim to neutralise currency movements and isolate equity performance.
Ultimately, the choice between hedged and unhedged depends on your objectives and views: hedging is typically preferred for risk control and stability, while unhedged exposure may be favoured by investors willing to accept currency volatility in exchange for potentially enhanced returns.
Where Asian equity funds fit in a portfolio
This all depends on your investment goals, attitude to risk and existing holdings. However, most UK investors usually regard Asian equity funds as diversifiers in a broader portfolio.
Our process & how we select Asian equity funds (Elite Rated)
FundCalibre’s experts can help you identify the most suitable Asian equity funds for your needs, as they’ve been scrutinising this area for years. Their analysis on Asian equity investment funds starts with AlphaQuest, its proprietary quantitative screening tool that estimates the likelihood that a fund manager will deliver superior returns.
Asian equity funds passing this test will be quizzed on their investment philosophy and portfolio construction approach. This analysis will be subject to peer review before a decision is made. Only the very best Asian equity funds will be awarded a prestigious Elite Rating, denoting that they have a skilled manager, a repeatable investment process and a history of consistent long-term returns.
FAQs about Asian equity funds
What is an Asian equity fund?
Asian equity funds are pooled investments that own shares in companies listed on various Asian stock markets.
What’s the difference between “Asia Pacific” and “Asia ex Japan”?
The key difference is the latter doesn’t include companies listed in Japan. “Asia Pacific” is a broader definition that typically includes Japan alongside other Asian markets, and in some cases may also include Australia and New Zealand.
Why do most Asian equity funds exclude Japan?
This country is often excluded from Asian investments as it’s developed and large enough to have its own sector.
Are Asian equity funds risky?
They are regarded as riskier because many are emerging markets. This means they have more exposure to political, economic, and currency volatility than developed markets. Liquidity can also be lower in some Asian markets, and corporate governance standards may be less consistent across the region. As a result, prices can be more volatile in the short term, although this higher risk is often associated with greater long-term growth potential.
What’s the difference between an Asian equity fund and an emerging markets fund?
Asian equity funds focus primarily on companies listed across Asia, including major markets such as China, India, Japan and Taiwan. Emerging markets funds, by contrast, invest across a broader set of developing regions globally, including Asia, Latin America, Central and Eastern Europe, the Middle East and Africa.
However, there is significant overlap between the two. China, India and Taiwan in particular are often heavily represented in both types of fund, meaning performance drivers can be similar even though the geographic scope differs.
Should I invest in an active Asian equity fund or an Asia ETF?
It depends on what role you want Asian equities to play in your portfolio and how much conviction you have in the region. Active Asian equity funds aim to outperform by using research, stock selection, and sector allocation to take advantage of inefficiencies across Asian markets. Given the region’s complexity and the number of less well-researched companies, active management can be particularly valuable here.
Asia ETFs, by contrast, provide broad, low-cost exposure by tracking an index. However, they also inherit the index’s characteristics including concentration risk in a small number of large companies and limited ability to avoid weaker areas of the market.
What countries are typically held in an Asian equity fund?
You will usually have exposure to China, India, Taiwan and South Korea, as well as other smaller markets.
How much exposure to China is in a typical Asian equity fund?
It depends on the individual fund. However, exposure to China is usually significant.
Can I hold an Asian equity fund in a Stocks and Shares ISA?
Yes. Most UK-domiciled funds are ISA-eligible.
Do Asian equity funds pay income?
Some do. It depends on its stated objective. Many Asian equity funds are primarily focused on capital growth, particularly in higher-growth markets where companies tend to reinvest earnings rather than pay out large dividends.
If income is a key priority, it may be worth looking more closely at the Asian Equity Income sector, where managers deliberately focus on higher-yielding stocks and more mature businesses that tend to offer more consistent dividend payouts, while still providing exposure to long-term growth in Asia.
What is currency risk for UK investors in Asian funds?
Exchange rate movements can increase or reduce returns in sterling terms.
How do I compare two Asian equity funds?
You need to look at their objectives, philosophies and investment processes. It’s also worth seeing whether their managers have strong track records of performing across different contexts.
How much of my portfolio should be in Asian equities?
It depends on your investment goals, attitude to risk and existing holdings. There are no hard-and-fast rules or limits in place.
What does the FundCalibre Elite Rating mean for Asian equity funds?
It indicates a fund has passed qualitative research on the manager, process, and long-term potential.