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Key themes

Three themes are likely to be relevant for the ASEAN-6 countries in the near term. First, we expect trade growth to endure as tariff exemptions for key sectors and ongoing global AI tech expansion would provide cushion, alongside regional countries’ active efforts to deepen engagements with key global partners. We are mindful that some extent of cyclical normalisation after last year's front-loading export lift and due to the lagged drag from US tariffs is inevitable. Second, regional authorities will seek to lift domestic consumption and investments tapping into FDI as well as expansionary fiscal policy at home as a counterweight to isolationist trade policies. Third, a push to deepen regional capital markets is bound to continue. 

Beyond discussing these themes, we also outline the economic and policy outlook for 2026 in this report, after which are country-specific notes. 

#1 Trade activity to normalise

2025 was a volatile year for trade policies, with an earlier sharp increase in reciprocal tariffs imposed by the US, eventually watered down by July-August. Nonetheless, the revised rates were 2x-6x pre-US elections, suggesting that trade barriers are higher than in the past. This marked a further weakening of the open, rules-based international trading order, which Southeast Asia thrived on. Fearing the grim impact, the bloc responded in two major ways: 1) by negotiating de-escalation with America, reducing elevated tariffs set in trade frameworks, and 2) by pragmatically doubling down on strengthening internal integration and diversifying partnerships with external partners.

We expect the region to build on these efforts in 2026 to backstop external resilience for the long haul and stand out amidst rising geoeconomic fragmentation.

- Constructive engagements with the US

ASEAN will aim to continue constructive engagements with the US. Regional exports withstood US tariffs well in 2025, growing by 12.3% yoy through November. This was lifted by strong shipments to the US, which increased by 24.5% yoy over the same period, due to the staggered implementation of tariffs, and not as blanket and burdensome trade restrictions as initially feared.

Crucially, the US lowered reciprocal rates for ASEAN-6, excluding Singapore, to 19-20%. These are significantly below the punitive rates of 30-46% that were threatened on Liberation Day. These rates came with various concessions, such as increased US goods purchases, greater market access, and reduced non-tariff barriers in areas like investment, digital trade, and services, among others. However, wider US bilateral goods trade deficits with ASEAN (notably Vietnam and Thailand) in 2025 might result in renewed scrutiny.

ASEAN will seek to secure preferential rates to limit the downside impact. Notably, Malaysia is actively negotiating with the US to maintain exemptions for its semiconductor exports from fresh tariffs, while Singapore is in talks to clarify on exemptions to 100% tariffs on branded/patented pharmaceutical goods.

Ongoing healthy two-way dialogue with the Trump administration would hopefully sustain the agreements and reduce the risk of an unpredictable roller coaster of trade policy announcements.

- Expanding partnerships in ASEAN and beyond

We expect ASEAN’s trade diplomacy to remain robust in 2026, following successful milestones in 2025.

ASEAN remains committed to upholding an open and rules-based multilateral trading system and deepening integration by actively upgrading existing Free Trade Agreements (FTAs) while exploring new upgrades with like-minded partners. Landmark agreements signed last year include the ASEAN Trade in Goods Agreement (ATIGA) Upgrade, and the ASEAN-China Free Trade Area (ACFTA) 3.0 Upgrade, both during the 47^th ASEAN Summit in October. These agreements streamline customs procedures and trade facilitation, and expand into new areas such as digital trade, green economy, and supply chain connectivity.

The bloc will look to expand and diversify its Trade Outside the US (TOTUS) network, while also signing a major digital agreement this year. Malaysia, the Philippines, Thailand have already restarted FTA negotiations with the European Union (EU), ASEAN’s third-largest trading partner), and are set to advance discussions this year, with expectations of finalising talks by 2027, which will form the foundation of a broader ASEAN-EU pact. Canada, ASEAN’s 16^th largest trading partner, is actively working with the region on a comprehensive ASEAN-Canada Free Trade Agreement (ACAFTA), targeting substantial conclusion by 2026. The bloc will also kickstart negotiations with South Korea, its fifth largest trading partner, this year to upgrade their FTA to include the digital economy, green economy, and supply chain resilience.

Lastly, the region will sign the Digital Economy Framework Agreement (DEFA), the world’s first region-wide agreement dedicated to digital economy governance, in 2026. Southeast Asia (SEA)’s digital economy is already booming and could cushion a moderation of goods trade. Gross merchandise value is on track to surpass $300bn in 2025 with 15% yoy growth, with the potential of unlocking value up to $2tn by 2030 with the progressive implementation of DEFA (see ASEAN-6 2025-40: The next leap for a discussion of trade deepening efforts and DEFA).

Investment interests remain strong

FDI inflows into the ASEAN-6 region have continued to grow at a steady pace in the past five years, improving from $171bn in 2019 vs nearly $240bn (DBSf in 2025), slightly better than in 2024. Within manufacturing FDI, supply chain intensive industries and digital economy likely drove much of last year’s upmove, notwithstanding the difficult geopolitical environment and isolationist trade tendencies.

The region’s strong presence in the electronics/semiconductor supply chain is well-established, and we discussed it in ASEAN-6 2025-40: The next leap and ASEAN-6 2025 Outlook: Crosswinds. ASEAN accounted for >20% of the global semiconductor ATMP industry (assembly marking testing and packaging), besides cornering ~12% of global greenfield flows and leading the region at large by attracting half of the developing world’s total. Industry estimates are optimistic about the outlook. WSTS projects global semiconductor revenue to grow 26.3% to $975bn in 2026, similar to 22.5% in 2025.

The US, intra-ASEAN flows, China, and the UK cumulatively accounted for nearly half of the FDI investments in 2024, with the mix turning more balanced with more interests from North Asian countries (especially Korea, Taiwan and Japan), as these countries moved up to top 10 investors. 

National governments have also undertaken a proactive approach in attracting these investment and trade flows, with more than 200 measures introduced in the past three years across the bloc, comprising of initiatives to boost supply chain facilities, improve transport and connectivity, as well as innovation.

Increasingly, it is also becoming a critical player in the Artificial Intelligence (AI) hardware ecosystem, benefiting from backward linkages to the investment boom in other parts of the world, particularly the US. Across the AI value chain, countries are present in the ‘hardware’ to ‘software’ solutions. This includes data centres, AI infrastructure build-up and hardware manufacturing on the ‘hardware’ part and applied AI/ specialised solutions on the ‘software’ layer.

On the ‘hardware’ part, the bloc’s strength stems from, a) depth of the supplier ecosystem, across high value added to low tech facilities – for instance precision engineering for fabs, outsourced semiconductor assembly and test services (OSAT), radio-frequency components for network gear, and optical interconnects all scale with AI compute; b) data centre FDI expansion has been robust, attracted by ASEAN’s land availability, connectivity, gradual shift towards clean energy and potential expansion in manufacturing capabilities; c) chip manufacturing is maturing, moving up the value chain from purely mature-node.

In 2024, ASEAN climbed to the fifth position globally, hosting about 390 data centres vs ~295 in 2020. This was accompanied by a sharp increase in data centre capacity to ~1.7GW from about 800MW in 2020, according to the ASEAN Investment Report. Capacity is projected to grow by CAGR of at least more than 10% until the end of this decade from a market size of about ~11-$13bn in 2024.

Amongst the ASEAN-6 countries, Malaysia is in the lead, boosted by investment commitments by big-ticket US-based hyperscalers, such as Amazon Web Services, Google, Microsoft, and Oracle. Singapore is viewed as a mature hub, with a growing operational base, with incremental scale up constrained by energy/ land uses. Spillover benefits are expected in the upcoming Singapore-Johor Special Economic Zone. Indonesia is a high growth market, especially with new commitments in Greater Jakarta and Batam, while Thailand, Vietnam, and Philippines are emerging markets. 

Seeking a piece of the rare metal supply pie

Amidst rising geopolitical tensions surrounding rare earth supplies, ASEAN’s resource base and growing industrial capacity position it as a potential strategic counterbalance. While China admittedly leads across the value chain by a wide margin, a few ASEAN-6 countries could emerge as alternative sources to the likes of Malaysia (for refining), Thailand, and Vietnam. ASEAN also has its strengths in the broader mineral universe, including more than half of the global nickel reserves, besides bauxite, and cobalt.

This will require concerted effort, starting with a dedicated investment framework roping in key stakeholders. This not only includes identifying the industry as a strategic priority but also makes it necessary for the public sector to take the driver’s seat, given the long gestation periods involved and capital-intensive nature of commitments. Support measures will encompass the need to raise medium-to-long term capital, better geological data to identify reserves, provision of tax concessions, and reduced regulatory friction. Cognizant of the region’s strengths, the US took proactive steps to secure rare supplies via deals with selected ASEAN counterparts last year, which included steps to allow companies to collaborate on local processing and manufacturing capabilities.

#2 Domestic drivers a key counterweight

ASEAN-6 exports mix, and tariff exemptions will provide some extent of resilience this year, we also expect national authorities to boost domestic engines including investment and consumption as a counterweight to protectionist global trade tendencies.

Regional central banks lowered interest rates in 2025, tapping the ample real rate buffer. Fiscal policies were also supportive.

Heading into 2026, authorities will be keen for investments to benefit the domestic economy through higher employment and broad basing the ecosystem, while fiscal policy stays expansionary albeit not threatening key thresholds. In this context, Indonesia will be in focus after the welfare-oriented push saw the 2025 deficit widen, raising the risk of a wider than budgeted gap this year as well. Vietnam has room for continued strong public infrastructure investments, with emphasis on transport and energy construction. Malaysia’s government spending will be calibrated with targeted and expanded cash aid and higher development outlays, but cutbacks in subsidies will enable gradual fiscal consolidation. Philippines’ public spending plans might be deferred by the ongoing corruption scandal and related allegations. Thailand’s fiscal policy direction is likely to be in a flux until the cloud from the elections on February 8 is lifted.

Room for monetary easing is limited this year (see discussion in the outlook section below).

#3 Efforts to deepen capital markets

Lastly, growth aspirations will also require deeper domestic capital markets, especially markets-based financing, to support expanding public and private sector needs. While positive, ASEAN-6 equity market performance, tracked by the MSCI ASEAN Index, lagged its North Asian peers last year due to the absence of heavyweights in generative AI and related technologies. However, we see room for investors to build exposure in these markets this year possibly as a non-AI counterweight to already crowded holdings in tech counters and concentrated ex-ASEAN country-specific bets.

The region’s vantage position in global supply chains, attractive valuations, positive earnings beat, expansionary fiscal tilt, and accommodative monetary conditions, offer an attractive diversification bet. Moreover, markets like Singapore have announced and are executing various measures, from increasing investor demand to developing cross-border connectivity/partnerships, and enhancing trading and regulatory approaches, to strengthen competitiveness and revive its equities market.

Our six-point checklist to screen attractiveness, spanning from export dependence to the US, stock market support measures to forward PE valuation relative to the 10Y history and PE/Growth ratio, shows Singapore and Indonesia leading the league tables for this year, while Philippines and Thailand have much room to catch up. Laggards within the ASEAN-6 region will be also required to address persistent domestic political and economic pain points. With resilient growth, reform momentum, and rising global relevance, ASEAN-6 is well-positioned to deliver attractive investment opportunities, from facing a disruptive year to making it an advantageous one in 2026.

Click here to read the full report.

Chua Han Teng, CFA

Economist - Asean

[email protected]

Radhika Rao

Senior Economist – Eurozone, India, Indonesia

[email protected]

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