ROI-Which ASEAN equity laggards could soon become leaders?: Manishi Raychaudhuri

While AI-fuelled equity gains in North Asia have hogged the spotlight this year, select ASEAN markets have quietly staged a breakout of their own. Moving forward, it will ​likely be local drivers — not broad macro tailwinds — that separate the leaders from the laggards. Several equity markets in the Association of ​Southeast Asian Nations (ASEAN) have had a banner year thus far. Thailand's SET Index and Singapore's Straits ‌Times ​Index have both surged 26% and 22% respectively in the year to September 18.

But other ASEAN markets have lagged considerably. The Philippines' PSEi and Malaysia's KLCI have posted near-flat returns, while Indonesia – the largest economy in the bloc – has fared far worse, with the Jakarta Composite nosediving 26%. The divergence is particularly surprising given that these markets have many similar performance catalysts.

For example, electronic hardware, energy, and industrials have propelled the economic engines of both Malaysia and Thailand, ‌yet have produced contrasting results in other equity markets. Even macroeconomic drivers do not align neatly with relative market performance.

Thailand and Singapore — ASEAN's second- and third-largest economies, respectively — are both more dependent on Middle Eastern oil and gas than Indonesia, according to International Energy Agency data. One might expect their markets to have taken a bigger hit from this year’s Iran war-driven energy shock. Yet equity markets in both have beaten the bloc’s top economy hands down. Broad macroeconomic drivers are clearly not the entire story in ASEAN. To spot where the next equity market breakout may occur, investors must therefore look beyond regional generalisations and examine the ‌realities on the ground.

DIFFERENT STROKES Let’s first consider the regional winners.

Singapore has benefitted from some broad-based trends, including increased defence spending and, more importantly, the enormous AI capital expenditure that is lifting revenue for the country’s semiconductor companies, data centre providers, and cooling and power equipment suppliers. But Singapore’s equity ‌boom has primarily been driven by financials, which account for 63% of the market, as well as gains in electronic technology and process industries, according to FactSet.

The top Singaporean banks, such as DBS and OCBC , have benefited from rising fee income in their rapidly expanding wealth-management businesses. The city-state's political neutrality and the stability of the Singapore dollar have helped attract safe-haven capital in an increasingly fragmented geopolitical environment. It also doesn’t hurt that financials and real estate investment trusts are significant dividend payers. Singapore is currently the region's highest-dividend-yield market.

Thailand, like Singapore, is benefiting from the AI boom, as technology companies are moving their production lines and investments away from China to Thailand, among other destinations. Electric vehicles and components, power utilities, oil and gas exploration, ⁠and tourism are ​additional drivers. Political stability has also helped. Thailand’s growth outlook improved after the formation ⁠of Premier Anutin Charnvirakul’s government in February. The government introduced large-scale relief measures to support consumers and small businesses following the outbreak of the war in the Middle East. The finance ministry in July upgraded its 2026 GDP growth forecast to 2.5%, from 1.6%, citing stronger trade, investment and consumption.

So can these equity booms continue? The case for Singapore is stronger than that ⁠for Thailand. Investors increasingly favour Singapore's high dividend yield in an uncertain economic environment and appreciate its safe-haven status. Even the upwardly revised growth forecast for Thailand remains below those of its ASEAN peers. Additionally, the Bank of Thailand has warned that households remain under pressure from slowing income growth and the rising cost of living, which could ​weigh on private consumption once government relief measures are phased out.

THE LURKING LAGGARDS The next question is which of the ASEAN equity laggards could start closing the gap.

One obvious option is Malaysia, ASEAN's fifth-largest economy. It’s the biggest beneficiary of cloud-computing and data-centre investment, which accounted ⁠for nearly half of the country's approved investments in the first half of this year. The International Monetary Fund's 4.7% growth forecast for 2026 is largely predicated on Malaysia's position as one of the world's top four net exporters of AI-related hardware. Yet the KLCI's near-flat performance reflects its weighting towards banks, consumer groups, and plantation and petrochemical heavyweights, with the latter sectors squeezed by commodity-driven ⁠margin ​pressure. That masks strong gains in electronic hardware, process industries and industrials.

Well-contained inflation and a strengthening ringgit, supported by soaring exports, have allowed the central bank to hold rates steady, providing a further boost to equities. Then there is Indonesia, which has the region's strongest forecast for corporate earnings growth and return on equity. Budgetary support for mining, EVs and battery supply chains has underpinned robust growth forecasts for these industries.

However, concerns over a widening fiscal deficit have weakened the rupiah by 6% this year and forced Bank Indonesia to raise its benchmark interest rate four times, by a cumulative 100 ⁠basis points. The abrupt resignation of Bank Indonesia Governor Perry Warjiyo in July also hurt sentiment, as did index provider MSCI's warning that the market could be downgraded from emerging-market to frontier-market status because of opaque shareholding structures at leading companies. In other words, the risk of further equity ⁠weakness is significant even after the market's big decline this year. Southeast Asian equities ⁠can no longer be considered a monolith, driven largely by the same macroeconomic forces. In today's fragmented market, hyper-focused, country-by-country analysis of local policy, corporate governance, and sector-specific catalysts is required.

(The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former head of Asia-Pacific Equity Research at BNP Paribas Securities.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ‌ROI on LinkedIn, and X.

And listen to the ‌Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days ​a week. (Writing by Manishi Raychaudhuri; Editing by Marguerita Choy and Anna Szymanski)