Core Insights - The Asia region is facing significant economic challenges due to a sharp rise in oil prices and tightening supply-chain issues, exacerbated by the ongoing Middle East conflict, with Brent crude surpassing $100 per barrel [1] - The stock markets in Asia are experiencing heightened volatility due to new trade-related investigations and tariffs imposed by the U.S., adding systemic risk to the region's manufacturing sectors [2] - The combination of inflation driven by conflict and protectionist trade policies is testing the resilience of Asian stock markets and the ETFs that track them [3] Market Reactions - Asian stock markets have reacted negatively, with significant capital outflows as investors withdraw from emerging Asian stocks at the fastest rate in nearly four years, leading to a 12% drop in South Korea's KOSPI index [4][5] - As of March 5, 2026, global funds recorded a net outflow of $11 billion from developing Asia (excluding China), marking the largest outflow since March 2022 [5] - In contrast, Asian leveraged ETFs saw inflows of $4.5 billion over a five-day period, indicating a potential for volatility if the geopolitical situation worsens [6] Long-term Outlook - The outlook for Asian stock markets and ETFs is characterized by a struggle between short-term challenges and long-term growth potential, suggesting that while the region is currently under pressure, it is not fundamentally broken [7] - Prior to recent shocks, the MSCI Asia Pacific Ex-Japan Index had seen significant gains, with South Korea's market rising 24% in January 2026, driven by growth in the tech sector [8] - The ETF market in Asia reached record levels, with assets exceeding $2.4 trillion and net inflows of $600 billion over the past two years, indicating strong underlying demand [9] ETF Performance - The iShares MSCI South Korea ETF (EWY) has seen an 18.4% decline since February 28, 2026, but has increased by 125% over the past year [11][13] - The iShares MSCI Japan ETF (EWJ) has dropped 8.9% since February 28, 2026, while gaining 25.2% over the past year [14] - The iShares MSCI Emerging Markets Asia ETF (EEMA) has lost 8.8% since February 28, 2026, but has risen 30.7% over the past year [15] - The iShares Asia 50 ETF (AIA) has decreased by 9.4% since February 28, 2026, with a 45.5% increase over the past year [16] - The iShares MSCI All Country Asia ex Japan ETF (AAXJ) has experienced an 8.5% decline since February 28, 2026, but has surged 31.2% over the past year [17]