At the start of 2026, Southeast Asian stock markets looked poised for a good year. The Jakarta IDX Composite Index was hitting new highs 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 of institutional funds. Tariffs imposed by US President Donald Trump on Liberation Day sent Malaysian and Singaporean markets stumbling in early 2025, but by the start of the new year both were trending higher.
We’re now almost halfway through 2026 and stocks in the region have been on a wild ride. The Thai stock market experienced a sharp sell-off after the US attack on Iran, only to rebound sharply. Singapore recently overtook Indonesia in terms of market capitalization, while Malaysia’s KLCI ended May at about the same level as at the start of the year. What’s going on and why have Southeast Asian stocks seen so many ups and downs this year?
Let’s start with the events of late February. On February 26, Thailand’s SET index reached its highest level in over a year. Two days later, the United States began bombing Iran and within a week the market had plunged 10 percent. Thailand is a major importer of crude oil, with significant exposure to the Middle East. The sell-off was a result of the market anticipating that Thailand, along with other major oil and gas importers, was about to come under strain.
It didn’t last long. After the initial sell-off, investors have dived back into Thai stocks and the benchmark is up 23 percent for the year. Other energy importers, such as the Philippines, might be expected to follow a similar path. But that was not the case. Like Thailand, the Philippines’ PSEi index hit a record high for the year on February 26, then plunged after the attack on Iran. But in the Philippines, the stock market has not rebounded. That’s down 6 percent for the year.
It’s not just about energy. Indonesia is less exposed to energy shocks than Thailand or the Philippines, but it has been by far the hardest-hit stock market in the region this year. Although the energy shock negatively impacted stocks in Indonesia and across the region, it only accelerated the sell-off that began in January when index provider MSCI warned Indonesia would be downgraded if it did not address regulatory and governance issues in its capital markets.
Regulators were quick to introduce reforms, but MSCI still removed several Indonesian companies from key indexes in May. Investors have been steadily exiting the market in recent months in anticipation of this reweighting, as well as in response to broader concerns over the government’s policy direction and fiscal discipline, as well as the weakening of the rupee. The composite index has fallen about 30 percent since the start of the year.
Vietnam provides an interesting counterpoint to Indonesia, with FTSE Russell confirming that the country will move to secondary emerging market status later this year. Vietnam is currently one of the most dynamically growing countries in the world, and deeper and more diversified capital markets will be key to consolidating this momentum.
Regulators will want to closely monitor developments, particularly the role of powerful conglomerates with concentrated ownership structures that generate large stock market gains. Allowing these conglomerates to escape strict regulatory scrutiny is one of the main reasons Indonesian stocks are taking a hit this year.
The IDX contraction was so prolonged that it allowed Singapore to overtake Indonesia as the region’s largest exchange by market capitalization. The market capitalization of all companies listed on the SGX surpassed $640 billion in May and the STI index, which tracks Singapore’s largest listed companies, is up 8% since the start of the year. Interestingly, this is not just about the IDX falling, but also about Singapore catching up.
In 2023, Singapore’s stock market was considered somewhat stagnant, under its weight given the country’s status as an international financial center. A shares market review group was formed and, by 2025, the Monetary Authority of Singapore had rolled out a S$5 billion shares market development program to help boost investment in SGX-listed shares. This was accompanied by tax incentives and various other policy adjustments. This appears to have worked, as the STI has increased by around 50% since mid-2024.
The region’s stock markets have been up and down over the past five months for a variety of reasons. The quality of governance and regulatory oversight is obviously a key factor. Less predictable external shocks, such as the US attack on Iran and the resulting disruption of Middle East energy exports, also played a role.
Broadly speaking, the volatility in Southeast Asian stocks this year reflects growing global uncertainty and a global economy that is becoming less predictable, riskier and more difficult to manage. The surge in Southeast Asian stocks underscores that investors will reward markets seen as credible and able to reduce risk. Whether markets are pricing this risk correctly remains an open and very important question in an increasingly uncertain world.