The Non-Japan Asia Equity ETF (AAXJ) trades closely with the MSCI China ETF (MCHI). Over the past three years, the two ETF’s have returned 39% and 38%, respectively, and tracked with a 93% r-squared from 2018 to date.
There is considerable speculation that Chinese manufacturers will respond to American tariffs by shifting production to Southeast Asia, to the benefit of those economies.
The biggest difference between AAXJ and MCHI is in risk. The implied volatility of options on AAXJ is consistently lower than MCHI, reflecting greater diversification. This lower risk does not appear to come at the expense of lower returns, which makes AAXJ a better choice.
If there are any shifting, it would be the low end because China choose not to make them anymore due to more profits in higher end goods. If Southeast Asia could be competitive, they would have done so in developing. It’s mostly to do with the climate and culture. It’s super hot and humid there all yr round just paying for cooling would make it less profitable. Constant typhoon destruction add further to yearly costs. Think about why Mexico, Central America and Carribeans never developed with the latter a paradise half the yr and hurricane hell the other half which conveniently no one talks about nor cares. Culturally most people there rather sleep during the day than work and go out only at night. Any money earned in one month, they will take off for few weeks to spend and enjoy life.