Southeast Asia’s strong fundamentals remain its core strengths. These include its large, youthful and increasingly affluent population base and business-friendly policies. The Asean spirit of policy collaboration and integration has been on strong display in recent months with the establishment of the Johor-Singapore Special Economic Zone (JS-SEZ).
The region is also benefiting from broad supply chain shifts, with companies diversifying their production facilities and searching for new markets. “China Plus N” continues to be the mantra for manufacturers as they search for alternative sites outside China to reduce their risks of incurring higher tariffs.
FDI inflows into Southeast Asia surged nearly 10% year-on-year to hit US$225 billion ($290 billion) in 2024, with US$219 billion of that flowing into the region’s six largest economies. These numbers look set to increase slightly this year. There is, however, reason to remain cautious about the outlook for 2026 as companies fully adjust to the Trumpian world order.
FDI looking resilient for now
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First, a quick explanation about FDI data worldwide. The most comprehensive dataset is compiled by the United Nations Trade and Development (UNCTAD). However, it is published long after the fact — UNCTAD’s latest world investment report was published only in June, for last year’s statistics. So, we will need to wait till around June next year to have a full picture for 2025.
One way to get an earlier indication is to look at Balance of Payments (BOP) data — basically a record of all the economic transactions and financial flows between a country and the rest of the world. This data is released by all countries, but is subject to different time lags individually. We can use it to derive the investment inflows for each economy and have an early indication of how things are shaping up. Particularly for this year, BOP data is useful to assess companies’ early response to US trade tariffs and disruptions.
In recent years, however, the BOP data has tended to overstate the final UNCTAD numbers — sometimes by as much as 10%. Inbound FDI into Southeast Asia was at US$243 billion last year according to the BOP method, 8% higher than the UNCTAD’s US$225 billion.
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Our analysis of BOP data for the Asean-6 shows about US$169.4 billion of FDI inflows so far this year, which will grow to an annual figure of about US$241.2 billion if the trend continues. Even with the expected deflation in this number, we believe the final UNCTAD number will be slightly higher than last year’s US$218.6 billion.
Singapore, Thailand and Vietnam are the top investment destinations
Singapore continues to lead Southeast Asia in attracting foreign investment. In the first three quarters of 2025, it drew US$123 billion in FDI, putting it on track for US$164.2 billion for the full year — a 14.5% increase from 2024. Its role as a regional financial hub, supported by strong institutions and infrastructure, remains a key draw.
Thailand has gained momentum, with US$10.2 billion in first-half inflows. If sustained, this would nearly double its annual FDI. Key sectors include manufacturing, data centres and electric vehicle components, with the Eastern Economic Corridor playing a central role.
Vietnam recorded US$9.4 billion in BOP-estimated inflows for the first half, suggesting a slight dip if annualised. However, its statistics agency reported US$18.8 billion in realised FDI for the first nine months — up 9% year-on-year. Both data sets point to steady investor sentiment despite tariff uncertainties.
Indonesia, by contrast, may see a decline of more than 25% in FDI this year. Weak domestic demand and bureaucratic hurdles have dampened its appeal relative to regional peers. For the Philippines, BOP data also shows a fall for the country, if annualised.
Overall, Asean’s mixed performance — with gains in some markets and declines in others — reflects continued investor confidence in the region’s role in global supply chains, even amid tariff-related headwinds.
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A slowdown could happen next year as US protectionism and retaliatory measures take fuller effect, while the gains from exports “frontloading” in most of 2025 dissipate. Investments may moderate, especially in the manufacturing and logistics sectors closely tied to global trade flows.
Strong fundamentals will counterbalance drag from tariffs
Despite external pressures, Southeast Asia’s fundamentals remain strong. FDI is a long-term commitment, and investors are looking past near-term tariff risks — planning for the decades ahead. In that horizon, fundamentals matter most in shaping investment decisions.
Regional cooperation is reflected in the JS-SEZ, which has attracted significant investment into advanced sectors such as semiconductors, lithium batteries and green manufacturing. Johor recorded Malaysia’s highest approved investment value in the first half of the year.
The Regional Comprehensive Economic Partnership (RCEP), in effect since 2022, has strengthened Asean’s appeal by creating the world’s largest free trade area. As companies diversify away from China, Southeast Asia’s strategic location and manufacturing capacity make it a preferred alternative.
Digitalisation is emerging as a key pillar of resilience. The upcoming Asean Digital Economy Framework Agreement (DEFA), expected by year-end, will harmonise digital trade rules and data governance across member states. This will reduce regulatory friction and enhance cross-border connectivity, attracting investment in technology, e-commerce, fintech and professional services.
While not immune to global shocks, Southeast Asia’s investment performance suggests resilience. The feared collapse following April’s “Liberation Day” tariffs did not materialise. As the saying goes, when America sneezes, the world catches a cold — but Southeast Asia, it seems, has taken an immunity jab.
Suan Teck Kin is head of research at UOB, where he is responsible for macroeconomic research on Southeast Asia and Greater China
