Firstly, regional leaders engaged constructively with the US, which helped them gain various concessions. These included selected sectoral exemptions, better bilateral market access, and lower non-tariff barriers in areas like investment, digital trade, and services, among others. The Asean summit in late-October 2025 saw the US ink two separate deals with Malaysia and Thailand to cooperate on diversifying and investing in their critical minerals supply chains, in addition to signing reciprocal trade agreements with four Asean countries.
Separately, Malaysia is seeking to maintain exemptions for its semiconductor exports, while Singapore is in talks to clarify exemptions for 100% US tariffs on branded/patented pharmaceutical goods. Encouraged by this progress, Indonesia also held follow-up discussions to firm up the contours of its deal with the US, pressing for exemptions for key commodities.
Secondly, Asean exports benefited from the upswing in tech spending due to strong AI-related external demand as well as pre-emptive purchases by US importers for the broader non-tech universe. Regional goods exports grew 12.3% y-o-y until November 2025, lifted by a 24.5% jump in shipments to the US. Lastly, a strong push to strengthen trade relations with other trading partners, via trade deals or access agreements, which included partners like Europe, the Middle East, etc.
Encouragingly, the Asean-6 PPP-weighted average growth fared around 50 basis points better than the mid-year forecast in 2025, likely at 4.9%. Stepping into 2026 on a firm footing, we are constructive on the regional growth outlook and potential despite some normalisation.
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How will 2026 shape up?
Most Asean countries navigated the tariff wall better than anticipated, and we expect a few of those tailwinds to extend into 2026. Benefits are likely to be accrued gradually from landmark agreements signed last year, which include the Asean Trade in Goods Agreement (ATIGA) Upgrade and the Asean-China Free Trade Area (ACFTA) 3.0 Upgrade, once ratification by all countries is complete and upgrades come into effect. These agreements streamline customs procedures and trade facilitation, and expand into new areas such as digital trade, green economy and supply chain connectivity.
The bloc will look to expand and diversify its Trade Outside the US (TOTUS) network. Malaysia, Philippines, and Thailand restarted free trade agreement (FTA) negotiations with the EU, Asean’s third-largest trading partner. The bloc will also kickstart negotiations with South Korea, its fifth-largest trading partner, this year to upgrade their FTA to include the digital economy, green economy, and supply chain resilience. Canada is also working actively with the region on a comprehensive Asean-Canada Free Trade Agreement (ACAFTA). Finally, the region will sign the Digital Economy Framework Agreement (DEFA), the world’s first region-wide agreement dedicated to digital economy governance, in 2026.
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Secondly, amidst rising geopolitical tensions surrounding rare earth supplies, Asean’s resource base and growing industrial capacity position it as a potential strategic counterbalance. While China admittedly leads across the value chain by a wide margin, a few Asean-6 countries could emerge as alternative sources to the likes of Malaysia (for refining), Thailand, and Vietnam. Asean also has its strengths in the broader mineral universe, including more than half of the global nickel reserves, besides bauxite and cobalt.
This will require concerted effort, starting with a dedicated investment framework roping in key stakeholders. This not only includes identifying the industry as a strategic priority but also makes it necessary for the public sector to take the driver’s seat, given the long gestation periods involved and the capital-intensive nature of commitments. Support measures will encompass the need to raise medium-to-long term capital, better geological data to identify reserves, provision of tax concessions, and reduced regulatory friction. Cognisant of the region’s strengths, the US took proactive steps to secure rare supplies via deals with selected Asean counterparts last year, which included steps to allow companies to collaborate on local processing and manufacturing capabilities.
Lastly, growth aspirations will also require deeper domestic capital markets, especially market-based financing, to support expanding public and private sector needs. While positive, Asean-6 equity market performance, tracked by the MSCI Asean Index, lagged its North Asian peers last year due to the absence of heavyweights in generative AI and related technologies. However, we see room for investors to build exposure in these markets this year, possibly as a non-AI counterweight to already crowded holdings in tech counters and concentrated ex-Asean country-specific bets.
The region’s vantage position in global supply chains, attractive valuations, positive earnings beat, expansionary fiscal tilt and accommodative monetary conditions offer an attractive diversification bet. Our six-point checklist to screen attractiveness — spanning from export dependence to the US, stock market support measures to forward P/E valuation relative to the 10-year history and P/E-to-growth ratio — shows Singapore and Indonesia leading the league tables for this year, while the Philippines and Thailand have much room to catch up. Laggards within the Asean-6 region will also be required to address persistent domestic political and economic pain points.
With resilient growth, reform momentum, and rising global relevance, Asean-6 is well-positioned to deliver attractive investment opportunities, from facing a disruptive year to making it an advantageous one in 2026.
Radhika Rao and Chua Han Teng are both senior economists at DBS Bank
