Are Asian ETFs in Jeopardy Amid the War & Tariff Double Whammy?

The Asia region is currently grappling with a severe economic double-whammy — a sharp oil price shock and tightening supply-chain bottlenecks. As the 2026 Middle East conflict escalates, Brent crude has surged past $100 per barrel, delivering a heavy blow to energy-dependent economies such as South Korea, India, and Japan.

Adding to this distress, the stock markets in this region are reeling from a new wave of trade volatility. The Trump administration’s recent launch of Section 301 trade-related investigations, coupled with the imposition of Section 122 tariffs on Feb. 24, has injected a fresh layer of systemic risk into the region’s manufacturing hubs.

This dual shock — war-driven inflation and protectionist trade policy — has put the resilience of Asian stock markets and the exchange-traded funds (ETFs) that track them to a critical test.

Against this backdrop, it is important to examine how the Asian stock markets have reacted to this dual headwind and whether the ETFs tracking them are truly at risk or merely experiencing a temporary downturn before a potential recovery.

Market Turmoil: From Seoul to Mumbai

The reaction across Asian bourses has been swift and painful, with spooked overseas investors pulling money out of emerging Asian stocks at the fastest pace in nearly four years (as reported by The Straits Times)

The evidence is clear. KOSPI, South Korea’s benchmark index, suffered its sharpest crash since 2008, plunging 12% overnight on March 4, as investors feared the impact of soaring fuel costs and U.S. “Section 301” investigations into its industrial capacity. In India, where more than 80% of oil is imported, the Nifty 50 also faced sustained pressure.

Consequently, as of March 5, 2026, global funds sold a net $11 billion of shares in developing Asia (excluding China) this week, marking the largest outflow since March 2022, according to data compiled by Bloomberg.

On the other hand, in the five-day period ending March 12, 2026, Asian leveraged ETFs attracted $4.5 billion in inflows, signaling a wave of nervous money (as per Bloomberg). This behavior suggests that any further escalation in the Middle East conflict or tariff-related uncertainty could trigger a violent unwinding of positions and significant cash outflows from regional funds.

Outlook for Asia: A Temporary Setback or Structural Decline?

The outlook for the Asian stock market and, hence, ETFs holding them is currently a battle between long-term growth and short-term survival. While the region is "battered," it is not necessarily broken.

For instance, before the recent shocks, the MSCI Asia Pacific Ex-Japan Index had skyrocketed, with South Korea gaining 24% in January alone, fueled by the AI boom. The robust undercurrent of earnings growth, particularly in the tech sector, suggests the region has the power to recover once the war situation eases.

Notably, ETF usage across Asia reached record levels last year, with ETF assets domiciled in the region topping $2.4 trillion, supported by robust net inflows of $600 billion over the last two years (as per Bloomberg). To this end, it is imperative to mention that Franklin Templeton mentioned in its January 2026 report that Asia will be a contributor to global ETF assets and innovation by the end of 2026.

Therefore, while the current turmoil is painful, it appears to be temporary. The Asian ETF market possesses the thrust needed to achieve a higher position on the global stage, with every potential to stage a robust comeback once these dual headwinds subside.

Asian ETFs Under the Radar

Considering the abovementioned discussion, the ongoing volatility brings the following Asian ETFs into the spotlight for investors with a long-term view:

iShares MSCI South Korea ETF EWY

This fund, with net assets worth $16.67 billion, offers exposure to 81 large and mid-sized companies in South Korea. Sector-wise, Information Technology (46.12%), Industrial (21.62%), and Financials (10.85%) hold the top three positions in this fund.

EWY has lost 18.4% since Feb. 28, 2026, when the Middle East escalation started, but surged a solid 125% over the past year. It charges 59 basis points (bps) as fees.

iShares MSCI Japan ETF EWJ

This fund, with net assets worth $18.98 billion, offers exposure to 179 large and mid-sized companies in Japan. Sector-wise, Industrials (26.69%), Financials (16.95%) and Consumer Discretionary (16.05%) hold the top three positions in this fund.

EWJ has lost 8.9% since Feb. 28, 2026, but soared 25.2% over the past year. It charges 49 bps as fees.

iShares MSCI Emerging Markets Asia ETF EEMA

This fund, with net assets worth $1.25 billion, offers exposure to 875 companies in emerging market countries in Asia. Sector-wise, Information Technology (37.30%), Financials (16.94%) and Consumer Discretionary (12.14%) hold the top three positions in this fund.

EEMA has lost 8.8% since Feb. 28, 2026, but soared 30.7% over the past year. It charges 49 bps as fees.

iShares Asia 50 ETF AIA

This fund, with net assets worth $2.96 billion, offers exposure to 53 large, established Asian companies. Sector-wise, Information Technology (54.68%), Financials (18.19%) and Communication (12.66%) hold the top three positions in this fund.

AIA has lost 9.4% since Feb. 28, 2026, but soared 45.5% over the past year. It charges 50 bps as fees.

iShares MSCI All Country Asia ex Japan ETF AAXJ

This fund, with net assets worth $3.64 billion, offers exposure to 905 large and mid-sized companies in emerging and developed Asian countries (excluding Japan). Sector-wise, Information Technology (37.31%), Financials (18.59%) and Consumer Discretionary (11.08%) hold the top three positions in this fund.

AAXJ has lost 8.5% since Feb. 28, 2026, but soared 31.2% over the past year. It charges 72 bps as fees.

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iShares MSCI Japan ETF (EWJ): ETF Research Reports

iShares MSCI Emerging Markets Asia ETF (EEMA): ETF Research Reports

iShares MSCI South Korea ETF (EWY): ETF Research Reports

iShares Asia 50 ETF (AIA): ETF Research Reports

iShares MSCI All Country Asia ex Japan ETF (AAXJ): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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