Opportunities in Asia — without China exposure

Can you still invest in Asia if you want limited exposure to China or will the country’s dominant position make this impossible?

The answer is yes, you can. While China may be an influential presence, there are plenty of other exciting investment stories across the region. Japan, India, Korea and Taiwan are all home to innovative companies with huge growth potential that are operating at the cutting edge of their industries.

Here we look at the fund options for investors who love the Asia and emerging market story but remain wary of mainland China.

Reasons for China caution

Let’s first touch on the reasons why China has fallen out of favour. Although the MSCI China Index rose in 2024 – after three negative years – concerns remain*. Geopolitical tensions are top of the list, including the potential impact of US President Donald Trump’s controversial trade tariffs.

Autocracy risk is another issue. Many investors are understandably fearful about putting money into companies that are exposed to more authoritarian regimes. The combination of these worries and the previous dismal stock market performance have taken their toll on sentiment.

It means the total held in China-focused funds by UK investors has fallen £900 million to £2.1 billion over the past two years. In contrast, the IA Global Emerging Markets sector has enjoyed a £6.8 billion increase in assets under management to £40.6 billion over the same period**.

So, what can be done if you’re anxious about China’s outlook but still buy into the idea that Asia provides tremendous long-term opportunities?

Option one: shun China

The first option is to shun China and that can largely be achieved with the Jupiter Asian Income fund, whose lead manager is the experienced Jason Pidcock. For the past few years, Jason has avoided investing in mainland China due to the geopolitical risks and the state of the economy. However, 14% of the revenue generated by the fund’s holdings comes from China via companies selling products and services into the country. Taiwan is the fund’s largest country allocation with 26.5%, followed by Australia with 22.2%. India and Singapore are next with 19% and 18% respectively***.

Jason is very well versed on the various political and economic situations and we like how he makes carefully considered stock choices. His focus is on investing in quality, growing, income-producing companies in the Asia Pacific region that can provide revenue growth, as well as high, sustainable or growing dividends. We believe this fund could appeal to long-term UK investors wanting exposure to the demographics of the region, both now and over the coming years.

Another fund that’s taken a similar stance to China more recently is GQG Partners Emerging Markets Equity, which has taken their exposure to zero, over uncertainty in a post-tarriff world. GQG is a relatively new arrival on the scene, having only launched in 2016. Lead manager Rajiv Jain focuses on future quality, rather than companies that have done historically well. We particularly like the investment they’ve made in research and the use of former investigative journalists and specialist accountants to help give them an edge. 

Option two: limit exposure

An alternative to ignoring mainland China completely is to have some holdings in the country – but ensure there’s plenty of exposure to other Asian countries. There are a few funds that fit this bill. 

One option is the Schroder Oriental Income Trust. This currently has a 16.9% allocation to China, with the largest allocation to Taiwan at 22%, followed by the 17.6% in Australia^. We like the experience of lead manager Richard Sennitt and see the fund as an excellent option for investors wanting exposure to the Asia Pacific region.

An alternative is Stewart Investors Asia Pacific Leaders. China has the second largest country allocation in this portfolio of 18.1%, behind India’s 34.4%^. However, the fund also has exposure to Taiwan, South Korea, Japan, Singapore, Australia, Philippines, Hong Kong and Thailand^, so assets are pretty well diversified.

We like this fund’s well-defined investment process as co-managers David Gait and Sashi Reddy have managed to consistently beat the market over a very long period. The team believes in backing its best ideas with a concentrated approach. This results in a focused portfolio of less than 50 holdings and its 10 largest accounting for 40% of assets under management.

Option three: look elsewhere 

The third option is to concentrate solely on different parts of Asia. For example, putting your money into the Goldman Sachs India Equity Portfolio. This fund’s objective is to capture the growth potential of the Indian economy – and it does this by investing in solid businesses of all sizes.

Currently large-cap names account for 55% of assets under management, while small-caps make up 29% and mid-caps 13%***. 

Other funds that could be worth a look include UTI India Dynamic Equity, which invests in a mix of large, mid and small-cap names. It likes to conduct plenty of on-the-ground research. A recent interview with manager Ajay Tyagi, covers the outlook for small and mid-cap stocks and what rising per-capita income means for future growth.

If you don’t fancy India, then there’s Comgest Growth Japan. This is a concentrated portfolio of 30-40 high-quality, long-term growth companies. The fund’s management team of Richard Kaye and Chantana Ward have demonstrated good active management credentials with a well-defined investment process. They believe that markets fail tocorrectly price a company’s sustainable competitive advantage, which can help it generate above average earnings growth.

A final option is the Baillie Gifford Japanese fund. This is one of the oldest Japan funds in the sector and has managed to deliver outstanding returns in the most difficult market conditions. It’s managed by a large team in Edinburgh, headed by lead manager Matthew Brett, and invests in growing Japanese businesses delivering consistently strong returns to shareholders.

*Source: index factsheet, 30 April 2025

**Source: Invention Association, full figures, March 2025

***Source: fund factsheet, 30 April 2025

^Source: fund factsheet, 31 March 2025