At the beginning of 2026, stock markets in Southeast Asia looked poised for a good year. Jakarta’s IDX Composite Index was reaching new heights every day. Global index provider FTSE Russell was preparing to upgrade Vietnam to Secondary Emerging Market status, a move likely to attract billions of dollars from institutional funds. U.S. President Donald Trump’s Liberation Day tariffs caused the Malaysian and Singaporean markets to stumble in early 2025, but entering the New Year, both were trending upward.
We are now almost halfway into 2026, and equities across the region have been on a wild ride. Thailand’s stock market saw a big sell-off after the United States attacked Iran, only to bounce back strongly. Singapore recently surpassed Indonesia in market capitalization, while Malaysia’s KLCI index ended May at around the same level it was at the beginning of the year. What is going on, and why have Southeast Asian equities been so up and down this year?
Let’s start with the events of late February. On February 26, Thailand’s SET index hit its highest point in over a year. Two days later, the U.S. began bombing Iran and within a week, the market had plunged 10 percent. Thailand is a major importer of crude oil, with heavy exposure to the Middle East. The sell-off was the market anticipating that Thailand, and other big oil and gas importers, were about to be squeezed.
It didn’t last long. After the initial sell-off, investors piled back into Thai stocks and the benchmark index is up 23 percent on the year. You might expect other energy importers, like the Philippines, to follow a similar path. But that hasn’t been the case. Like Thailand, the Philippines’ PSEi index hit a high watermark for the year on February 26 and then plunged after the attack on Iran. But in the Philippines, the stock market didn’t bounce back. It’s down 6 percent for the year.
This is not just an energy story. Indonesia is less exposed to energy shocks than Thailand or the Philippines, yet has been by far the hardest hit stock market in the region this year. While the energy shock negatively impacted equities in Indonesia as it did across the region, it merely accelerated a sell-off that began back in January when index provider MSCI warned Indonesia it would be downgraded if it didn’t address regulatory and governance issues in its capital markets.
Regulators were quick to make reforms, but MSCI still removed several Indonesian companies from key indexes in May. Investors have been steadily exiting the market for the last several months in anticipation of this reweighting, as well as in response to broader concerns about the government’s policy direction and fiscal discipline, as well as a weakening rupiah. The composite index has fallen by around 30 percent since the beginning of the year.
Vietnam poses an interesting counterpoint to Indonesia, with FTSE Russell confirming the country will be upgraded to Secondary Emerging Market status later this year. Vietnam is one of the hottest growth stories in the world right now, and deeper and more diversified capital markets will be essential for consolidating that momentum.
Regulators will want to keep a close eye on how things develop, particularly the role of powerful conglomerates with concentrated shareholding structures that are driving a significant amount of stock market gains. Allowing such conglomerates to avoid tough regulatory scrutiny is one of the main reasons Indonesian equities are being hammered this year.
The contraction in the IDX has been so prolonged that it allowed Singapore to overtake Indonesia as the region’s largest exchange by market capitalization. The market cap of all companies listed on the SGX passed $640 billion in May and the STI Index, which tracks Singapore’s largest publicly traded companies, is up 8 percent year to date. Interestingly, this is not just about the IDX falling but also of Singapore catching up.
Back in 2023, Singapore’s stock market was considered somewhat stagnant, punching under its weight given the country’s status as an international financial hub. An Equities Market Review Group was formed, and by 2025, the Monetary Authority of Singapore had rolled out a S$5 billion Equity Market Development Programme to help boost investment in SGX-listed stocks. This was accompanied by tax incentives and various other policy tweaks. It seems to have worked, as the STI is up around 50 percent since mid-2024.
Stock markets in the region have been up and down over the last five months for a variety of reasons. The quality of governance and regulatory oversight is obviously a key factor. Less predictable external shocks, like the U.S. attack on Iran and subsequent disruption of Middle East energy exports, have also played a role.
Broadly speaking, volatility in Southeast Asian equities this year is reflective of growing global uncertainty, and a global economy that is becoming less predictable, higher risk, and trickier to navigate. The wild ride in Southeast Asian equities underlines that investors will reward markets that are seen as credible and capable of reducing risk. Whether markets are correctly pricing that risk remains an open, and very important, question in an increasingly uncertain world.
