A 15.24% gain made Asia ex-Japan mutual funds the top-performing geographic sector funds for the third quarter of 2004, according to research from Lipper. Funds focused on Japan, however, sank.

The region, according to fund managers interviewed by Reuters, is expected to gain momentum over the next few months, even as the global economic impact of higher oil prices tries to stymie the worldwide economy.

"We are expecting Asia Pacific ex-Japan to outperform North American and European investments over the medium- to long-term," said Ron Otsuki, a managing director of Manulife Asset Management. "Yes, they are impacted to a degree by oil prices, but domestic growth in those countries is quite high," added the Hong Kong-based manager.

Japan funds took a 6.38% hit for the quarter after two quarters of good growth. Analysts said that 2005 should be a year of just mild growth for Japan’s economy, thanks to less of a demand for its exports from countries like China and the United States.

Out of the 15 geographic areas Lipper tracked for the third quarter, funds concerned with Indonesia finished a strong second to the Asia ex-Japan funds, with returns of 14.59%.

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