Asean equities in stronger investment phase 

ASEAN (Association of South-East Asian nations) equities are set for a stronger second half of 2026 (2H26) as easing inflation, lower energy prices and improving policy stability restore investor confidence across the region.

With geopolitical tensions showing signs of moderating and currencies expected to become more stable, analysts believe the environment is turning more favourable for both cyclical recovery and long-term structural growth.

Malaysia stands out as one of the region’s preferred markets, while Singapore continues to attract investors seeking stability, income and quality defensive exposure.

DBS Bank argues that Asean equities are moving into a more “supportive investment phase” after having endured a volatile 1H26, weighed down by the Middle East energy shock, a stronger US dollar following hawkish US Federal Reserve (Fed) signals and heightened geopolitical uncertainty.

“The combination of moderating inflation, lower oil prices, stabilising currencies, and policy rates that have likely peaked should gradually restore foreign investor confidence,” the Singapore financial group says.

“Together with resilient earnings supported by artificial intelligence (AI)-related investment and improving domestic demand, Asean offers an increasingly compelling opportunity for investors seeking both cyclical recovery and long-term structural growth,” it adds.

Malaysia in sweet spot

According to DBS, Malaysia is in a sweet spot, with the brighter regional outlook coming at an opportune time as the country continues to benefit from resilient exports, alongside expanding semiconductor investments and sustained foreign direct investment inflows (FDI).

“Malaysia remains one of the region’s preferred equity markets, supported by resilient electronics exports, expanding semiconductor investment, and continued inflows of FDI,” the group says.

“Fiscal consolidation remains on track despite temporary subsidy-related pressures, reinforcing long-term policy credibility,” it adds.

DBS believes ongoing government initiatives aimed at improving capital market efficiency could gradually narrow Malaysia’s valuation discount.

While programmes such as the Government-linked Enterprises Activation and Reform Programme (GEAR-uP) and MY Value Up are positive developments, it argues that execution will ultimately determine whether investor perceptions improve.

“GEAR-uP offers the stronger catalyst, with Malaysia’s six core government-linked investment companies targeting RM100bil of market-cap uplift of their investee companies over five years,” it explains.

DBS says the next stage of Malaysia’s market reforms should focus less on signalling policy intentions and more on delivering measurable improvements in capital allocation, shareholder returns and balance sheet management.

Currency stability is also expected to become an important tailwind for Malaysian assets.

RHB Research expects the ringgit to strengthen further as energy-related inflation pressures ease and geopolitical risks recede.

It projects the ringgit to ease towards the 4.00 to 4.05 range against the US dollar by end-2026 from around 4.08 to 4.09 currently.

RHB Research expects the Fed to leave interest rates unchanged through 2026 before cutting rates in 2027, while Bank Negara is expected to keep the overnight policy rate at 2.75% over the same period.

“This prospective narrowing in the United States-Malaysia policy differential should gradually restore support for ringgit,” it explains.

A firmer ringgit could further enhance Malaysia’s appeal to foreign investors, especially if currency volatility declines alongside improving macroeconomic conditions.

Supportive trends

Across the wider region, DBS believes several supportive trends are beginning to converge.

“Importantly, most Asean central banks have largely completed their monetary tightening cycles,” it notes.

With inflation moderating across much of South-East Asia, policymakers are increasingly shifting their attention towards supporting domestic demand instead of containing price pressures.

The bank also expects regional currencies to stabilise as lower energy import costs improve current account balances.

“Currency stability has historically been an important catalyst for foreign portfolio inflows into Asean,” it points out.

Beyond macroeconomic improvements, DBS argues that the region’s long-term structural investment case continues to strengthen through AI-related capital expenditure (capex).

“Global AI capex remains robust, supporting electronics exports, semiconductor manufacturing, industrial automation, and data centre investments across the region,” it says.

Rather than competing directly in developing frontier AI models, Asean economies are increasingly becoming key manufacturing and infrastructure partners within the global technology supply chain.

Singapore – relative safe haven

Singapore remains one of the clearest beneficiaries of this trend.

DBS describes the republic as “Asean’s highest-quality defensive market”, supported by resilient economic growth, stable inflation and strong exposure to advanced manufacturing and semiconductor production.

The bank expects Singapore’s 2026 gross domestic product (GDP) to grow 4.3%, citing stronger manufacturing activity and continued benefits from the global AI investment cycle.

It also points to regulatory reforms aimed at revitalising Singapore’s equity market.

“Deployments under the Equity Market Development Programme (EQDP) and the enhanced Grant for Equity Market Singapore scheme underscore a renewed focus on broadening the market and small and mid-cap development,” it highlights.

Although valuations have risen following repeated record highs for the Straits Times Index (STI), DBS believes further rerating remains possible as liquidity improves and market reforms continue.

“The Singapore equity market offers the highest dividend yield among the region with an average yield of around 4%, mainly derived from real estate investment trusts (REITs) and banks,” DBS says.

OCBC Bank shares a similarly constructive outlook on Singapore equities, highlighting the market’s defensive characteristics during periods of global uncertainty.

“We remain positive on Singapore equities, supported by attractive valuations, strong dividend yields, and ongoing market development initiatives,” it explains.

OCBC says Singapore continues attracting “safe-haven” capital thanks to its stable economy, sound governance and resilient currency.

It also notes that the STI trades at reasonable valuations while offering an attractive dividend yield of about 4.2%.

According to OCBC, initiatives introduced under the EQDP have already boosted trading activity and investor participation, particularly among small and mid-cap companies.

Banks remain among its preferred sectors because of resilient earnings, generous dividend distributions and share buyback programmes, while opportunities are also emerging in REITs, property developers and construction companies benefiting from large infrastructure projects.

According to RHB Research, Singapore’s currency is expected to remain one of Asia’s strongest over the medium term.

Structural strengths

Looking beyond Malaysia and Singapore, DBS continues to favour several Asean markets based on their individual structural strengths.

It says Vietnam remains the region’s strongest long-term structural growth story as manufacturers continue relocating supply chains while exports and FDIs remain robust. The bank expects the GDP to grow 8% this year.

“A sanguine outlook, together with entry into the international benchmark index, should set the stage for stronger performance in the 2H26,” DBS says, noting Vietnam has been upgraded from a Frontier to Secondary Emerging Market status by FTSE effective September 2026.

As for Indonesia, DBS says the long-term structural story remains intact through downstream industrialisation and critical mineral development, although higher US interest rates continue to create intermittent capital flow volatility.

“As energy prices normalise and external balances improve, investor focus is likely to return to Indonesia’s favourable domestic growth outlook,” DBS says.

Meanwhile, Thailand’s recovery continues to depend on domestic policy execution.

“Near-term volatility may persist, but we see these pockets of weakness as entry points into names tied to tourism rebound, healthcare sector rerating, the ongoing infrastructure build-out, and renewed appetite for AI and telecommunications-linked names,” DBS says.

DBS says the Philippines remains one of Asia’s more energy-sensitive markets and stands to benefit as the energy shock unwinds.

“Our focus is on stock selection of companies that can absorb near-term macro damage while still retaining enough beta to participate in the relief trade.”