Asia Pacific Ex-Japan ETFs Gain Momentum on AI and Earnings Strength

Explore the Asia Pacific ex-Japan investment outlook for 2026, driven by AI and strong earnings. Learn about a low-cost ETF for exposure and key market drivers to watch.

Investor attention is increasingly turning toward the Asia Pacific region as 2026 approaches. Despite a recent lull in short-term news catalysts, robust underlying fundamentals and the pervasive trend of artificial intelligence (AI) are bolstering a positive outlook for the area excluding Japan. The central question for markets is whether this momentum can be sustained throughout the year.

A Cost-Efficient Vehicle for Exposure

For investors seeking passive exposure to this theme, the L&G Asia Pacific ex Japan Equity UCITS ETF offers a targeted approach. The fund provides physical replication of the Solactive Core Developed Markets Pacific ex Japan Large & Mid Cap Index. With a total expense ratio (TER) of 0.10% per annum, it is positioned as a cost-efficient option within its competitive segment. As of March 3, the ETF's assets under management stood at $816.09 million. The product employs a distributing structure, focusing on long-term capital growth through participation in the region's leading companies.

Key Drivers: Earnings and Artificial Intelligence

Market analysts project corporate earnings growth of 12% to 13% for the Asia Pacific ex-Japan region this year. A significant contributor to this forecast is the heavy weighting of AI-related firms within the benchmark, which constitute approximately 30% of the underlying index. Beyond technological innovation, potential interest rate adjustments by the US Federal Reserve could provide further support to global growth dynamics, creating additional upside potential for Asian markets.

Within the regional landscape, Chinese equities are viewed constructively due to attractive valuations and consistent capital inflows. South Korea, following a strong performance in the previous year, remains a cornerstone of Asian market strength. The global semiconductor industry continues to benefit from massive investments in AI applications, underpinning revenue and innovation for key regional heavyweights.

Critical Data and Trends for Investors to Monitor

The immediate focus for markets will be key economic indicators from China. Upcoming releases of Purchasing Managers' Index (PMI) figures, alongside Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data, will offer crucial insights into industrial momentum and domestic demand. These metrics are likely to significantly influence short-term risk appetite across Asia.

Beyond macroeconomic data, investors should watch sectoral developments within technology, industrial, and consumer discretionary industries. These sectors play a pivotal role in the region's structural growth narrative. Furthermore, trends in fund flows into the Asia ex-Japan segment provide important signals regarding the confidence levels of institutional investors.