ASEAN 2Q26: SG and MY to outshine the peers

• Within ASEAN-4, the performance divergence in Q1 was extreme: Thailand’s SET surged +14.9% on election relief, Singapore’s STI gained +4.4% after breaching 5,000 for the first time, Malaysia’s KLCI eked out +1.5%, while Indonesia’s JCI collapsed -18.7% amid rating downgrades, MSCI warnings, and rupiah weakness.

• Moving into Q2 2026, our outlook maintains overweight on Singapore and Malaysia for their macro resilience, structural catalysts, and valuation support, and underweight on Indonesia and Thailand where policy credibility risks and growth constraints dominate.

• Within ASEAN, selectivity has rarely mattered more. Our MSCI ASEAN target of 890 (12.2% price return upside and 24.2% total return upside), derived from 15x FY28E EPS of 59.3, reflects a constructive but disciplined view that rewards structural quality over optically cheap valuations.

Executive Summary

Singapore and Malaysia stand out as the region’s preferred markets heading into Q2 2026, while Indonesia and Thailand face structural and cyclical headwinds warranting an underweight position.

The performance was largely in line with our positioning earlier, where we favour Singapore and Malaysian market while underweighting Thailand and Indonesia. As a result, Singapore, Malaysia and Indonesia saw volatility, while we missed on Thailand’s performance lately. Although the MSCI ASEAN performance was slightly impacted by the USD movements, since the index base currency is USD, our thesis on the respective markets remains validated.

We remain overweight Singapore and Malaysia into Q2 2026 given their macro resilience, structural catalysts, and supportive valuations, while maintaining an underweight on Indonesia and Thailand due to policy risks and constrained growth outlook.

Figure 1: Our previous ASEAN call

Q1 delivered a tale of two ASEANs

Within ASEAN-4, the performance divergence was extreme: Thailand’s SET surged +14.9% on election relief, Singapore’s STI gained +4.4% after breaching 5,000 for the first time, Malaysia’s KLCI eked out +1.5%, while Indonesia’s JCI collapsed -18.7% amid rating downgrades, MSCI warnings, and rupiah weakness.

The quarter began promisingly. Singapore’s STI breached 5,000 on February 12 for the first time in history, reaching an all-time high of 5,041 on February 23, driven by safe-haven flows, the government’s Equity Market Development Programme (EQDP), and robust bank earnings. Thailand’s SET staged the region’s sharpest rally, surging 15.7% in February alone following the Bhumjaithai Party’s snap election victory on February 8, which ended years of political paralysis. Malaysia’s KLCI touched 1,759 on January 27, its highest since October 2018, supported by a firming ringgit and Q4 2025 GDP of 6.3% that beat all estimates. Even Indonesia briefly celebrated as the JCI hit an all-time high of 9,174 on January 20.

Then came the twin shocks. On January 28, MSCI issued a “crucial warning” freezing Indonesian stock index rebalancing over free-float concerns, triggering a -5.3% single-day JCI crash. Moody’s downgraded Indonesia’s credit outlook to negative on February 5, followed by Fitch on March 4. The JCI’s collapse accelerated as institutional investors fled and the index fell from 9,174 to approximately 6,975 by early April, a staggering -24% peak-to-trough decline.

The February 28 eruption of the US-Israel-Iran conflict transformed global markets. Brent crude surged 65% in March to close to $120/bbl, triggering stagflation fears across energy-importing ASEAN. Within ASEAN in March, Indonesia suffered USD 1,380 mil foreign net outflow, followed by Thailand’s USD 1,243 mil and Malaysia’s USD 10.9 mil. As of the latest data, Malaysia and Thailand have registered net inflows in April, indicating a calmer reaction from foreigners.

Figure 2: ASEAN bourses YTD performance

Figure 3: Malaysia, Indonesia and Thailand bourses foreign net inflow YTD

Structural ASEAN thesis remains intact

ASEAN’s long-term investment case rests on four pillars that continue to strengthen despite the geopolitical shock. First, supply chain diversification is accelerating. The FDI into developing markets in ASEAN is showing a sustained positive net inflow, with China appear to be the top contributor, a signal of heightened geopolitical fragmentation trend to benefit ASEAN as manufacturing hub.

Figure 4: Malaysia, Indonesia and Thailand FDI (USD m)

Second, demographics are exceptional: a 686 million population with a median age of 30, a labour force of 470 million peaking around 2050, and a middle class projected to grow from 200 million to 334 million by 2030. Thirdly, the digital economy surpassed $300 billion in GMV in 2025 per the Google-Temasek-Bain report, with revenue growing 11.2x since 2016.

Figure 5: ASEAN-4 GDP growth

The data centre supercycle is arguably ASEAN’s most transformative near-term catalyst. Malaysia alone has 3.4 GW of data centre capacity in its pipeline, 60% of all proposed projects across Southeast Asia, with MYR 90.2 billion in hyperscaler commitments from Microsoft, Google, Oracle, NVIDIA, and ByteDance. ASEAN data centre power demand is projected to quadruple from 2.6 GW to 10.7 GW between 2025 and 2035.

Key structural headwinds include US tariffs running at 10-19% on ASEAN exports, China’s uncertain growth trajectory and the Middle East conflict’s energy price shock on net oil-importing ASEAN economies. The region’s trade surplus with the US reached $245 billion in 2024, making it a potential tariff target.

Our view towards the ASEAN bourses

Singapore: Quality growth at reasonable price

Supported by resilient earnings from banks alongside earnings growth in industrial sectors, we believe Singapore equities remain well-positioned to attract capital inflows and deliver steady returns in an increasingly uncertain global environment.

Key structural catalysts continue to support the market. The Equity Development Programme (EQDP), GEMS, and the Value Unlock programme are drawing both institutional and retail participation back to Singapore equities, improving liquidity, encouraging corporate engagement, and helping to close the longstanding valuation discount relative to regional and global peers.

Figure 6: STI 1-year performance

Read more: Singapore: STI to hit near 6,000 by the end of 2028, alongside an annual dividend yield of 5%

Malaysia: More to go

Malaysia’s 5.2% GDP growth in 2025 was the strongest since 2022, with Q4’s 6.3% print beating all forecasts. BNM upgraded its 2026 forecast to 4.0-5.0%, supported by private consumption, investment, and Visit Malaysia Year 2026. Inflation remains remarkably benign at just 1.4% in February 2026, with BNM holding the OPR at 2.75% and consensus unanimous on no change through 2026.

The Malaysian equity market has started the year on a strong note, with the KLCI Index consistently trading above the 1,700 level. We believe this momentum could be sustained, supported by a positive macro backdrop, a stronger corporate earnings outlook, and moderating external uncertainties.

Figure 7: KLCI 1-year performance

Read more: Recent global developments are expected to have a limited impact on the Malaysian equity market

Indonesia: Policy credibility crisis overshadows valuations

Indonesia’s JCI suffered its worst quarterly performance in years, falling 18.7% in Q1 2026 after a cascading series of domestic shocks compounded by the global energy crisis. By early April 2026, the index sits near 6,975 with cumulative foreign equity outflows of Rp 30.88 trillion.

The fundamental problem is policy credibility erosion. The 2025 fiscal deficit reached 2.92% of GDP — the largest in two decades outside COVID — with revenue coming in 8% below target, partly due to the botched Coretax online system rollout. Finance Minister Purbaya admitted that if oil reaches $90-92/barrel, the deficit could widen to 3.6% of GDP, breaching the 3% legal ceiling. The Danantara sovereign wealth fund’s opaque borrowing practices have further alarmed rating agencies.

Bank Indonesia is trapped. The rupiah hovering near 17,000/USD constrains any rate cuts, yet the economy needs monetary support. BI has held rates at 4.75% for six consecutive meetings. Inflation spiked to 4.76% in February before easing to 3.48% in March. The middle class shrank from 57 million to 48 million over five years, undermining the consumption-led growth narrative.

While the JCI at approximately 12.5x forward P/E trades 0.5-1.0 standard deviations below its historical mean, we argue Indonesia should trade at a discount to our 15x fair value (12-13x) given the dual rating downgrades, MSCI May 2026 rebalancing risk, and fiscal anchor drift. We maintain underweight pending clearer signals of fiscal consolidation and IDR stabilisation.

Figure 8: JCI 1-year performance

Thailand: Post-election rally has outrun fundamentals

Thailand’s SET delivered ASEAN’s best Q1 performance at +14.9%, driven almost entirely by the February 8 snap election that installed Bhumjaithai Party leader Anutin Charnvirakul as Prime Minister. Foreign investors bought a net THB 45.43 billion from January through early March.

But the macro backdrop remains ASEAN’s weakest. GDP forecasts have been slashed repeatedly — JSCCIB now projects just 1.2-1.6% for 2026. Thailand experienced effective deflation of -0.1% in 2025, and the BOT has cut rates six times totalling 150 basis points to reach 1.00%, leaving minimal remaining policy space. Household debt at 86.7% of GDP represents a structural brake on consumption and credit growth. Bank NPLs are forecast to rise to 2.8-3.0% in 2026.

Tourism disappointed in 2025 with arrivals declining 7.3% to 32.97 million. Chinese tourists fell approximately 30% to 4.47 million amid safety concerns and scam-related incidents. The SET (1,454 as of 9 April 2026) at 15x FY28E EPS implies approximately 10% downside from current levels, strongly supporting our underweight positioning.

Figure 9: SET 1-year performance

Forward earnings estimate

FY27 forecasted EPS growth justification

We project an acceleration to approximately 7.3% composite growth in FY27E, driven by: Singapore banks benefiting from fee income diversification and buyback accretion (+6.5%); Malaysia’s data centre construction multiplier and JS-SEZ investment cycle reaching peak contribution (+6.1%); Indonesia benefiting from base effects and commodity recovery if fiscal concerns stabilise (+9.5%); and Thailand posting modest recovery in corporate earnings with new government policy execution (+7.3%). The acceleration reflects the typical earnings cycle pattern where ASEAN earnings compound faster in year-two of a rate-cutting cycle as credit growth and investment spending flow through income statements.

FY28 forecasted EPS growth justification

We forecast a further acceleration to approximately 8.4% composite growth in FY28E, generating composite EPS of 59.3. Singapore’s bank NIM normalisation limits upside, but REIT DPU recovery and semiconductor capex contributions sustain mid-to-high-single-digit growth (+8.5%). Malaysia remains a strong contributor as data centre revenue recognition peaks and stronger consumer spending coupled with business activity (+5.1%). Indonesia’s growth is driven by base effects from FY27 recovery and commodity upside (+12.0%). Thailand continues to underperform with structural constraints from household debt limiting credit and consumption multipliers (+6.4%).

Upside/downside risk to our call

Three developments could change this framework: a de-escalation of the Middle East conflict (reducing oil prices and restoring risk appetite), a credible Indonesian fiscal consolidation signal (stabilising the rupiah and reversing capital flight), or a sustained Chinese tourist recovery to Thailand (adding meaningful GDP uplift).

Until these materialise, the base case favours allocating to ASEAN’s northern tier of quality and reform over its southern tier of policy uncertainty and structural drag.

Maintain 3 stars ‘Attractive’, target price at $890 on top of 4% forward dividend per annum

The MSCI ASEAN Index at 793 is trading at approximately 13.4x FY28E EPS, a meaningful discount to our 15x fair value. The 12.2% implied price return upside to our 890 target reflects our conviction that ASEAN’s 7.3-8.4% earnings growth trajectory, anchored by Singapore and Malaysia’s structural catalysts, can sustain a moderate multiple expansion from current depressed levels. On top of that, investors could enjoy a potential 4% of dividend yield on an annual basis.

Combining above, investors could enjoy a 24.2% of upside on total return basis should our assumptions materialised.

Table 1: MSCI ASEAN valuation

	FY25	FY26E	FY27E	FY28E
EPS	47.5	51	54.7	59.3
y/y growth		7.40%	7.30%	8.40%
Implied PE	16.7x	15.5x	14.5x	13.4x
Target price		765	821	890
Upside Potential (price return)				12.20%
Upside Potential (total return)	~4% Dividend per annum			24.2%

Source: Bloomberg Finance L.P., iFAST Compilation, Data as of 10 April 2026.

Key Summary

Moving into Q2 2026, our outlook maintains overweight on Singapore and Malaysia for their macro resilience, structural catalysts, and valuation support, and underweight on Indonesia and Thailand where policy credibility risks and growth constraints dominate.

Within ASEAN, selectivity is now the key determinant of returns. Our MSCI ASEAN target of 890 (12.2% price return upside and 24.2% total return upside), derived from 15x FY28E EPS of 59.3, reflects a constructive but disciplined view, favouring structural quality over optically cheap valuations.

The Principal ASEAN Dynamic Fund Class SGD offers ASEAN exposure with Vietnam as part of a wider allocation. Investors may also consider a cheaper alternative, United ASEAN Fund SGD, which offers comparable exposure.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.