[WORLD] In 2025, Southeast Asian stock markets are facing mounting pressure as they contend with a mix of economic slowdowns, rising U.S. tariffs, and a shift in global investor focus. While the region has historically been an attractive destination for foreign investments, these new challenges have left investors worried, pushing Southeast Asian markets to the edge. As a result, stock performance across ASEAN (Association of Southeast Asian Nations) nations has faltered, prompting many to reassess their investment strategies.
This article explores the causes behind Southeast Asian stock market struggles, how U.S. tariffs are affecting the region, and what this means for the future of the economy.
The Impact of U.S. Tariffs on Southeast Asia
The introduction of U.S. tariffs on Chinese goods initially benefited Southeast Asia, with countries such as Thailand, Vietnam, and Indonesia seen as alternative manufacturing hubs for companies seeking to avoid tariffs. However, in 2025, the dynamic has taken a turn for the worse. New tariffs introduced by the U.S. have put Southeast Asian nations back in the crosshairs, creating fresh concerns over the long-term stability of the region’s economies.
Gary Tan, a portfolio manager at Allspring Global Investments, expressed that, “For emerging market investors, there is little reason to be invested in ASEAN in the near term.” Tan further pointed out that weak domestic consumption and sluggish trading volumes in Southeast Asia have contributed to the waning appeal of the region. With China’s stock market gaining momentum, especially in sectors like artificial intelligence (AI), Southeast Asian nations are increasingly being overshadowed.
Foreign Capital Outflow and Sluggish Stock Market Performance
The consequences of these economic and geopolitical tensions have been evident in the outflow of foreign capital from Southeast Asia. The first quarter of 2025 saw Southeast Asia face a significant capital flight, with $4.16 billion leaving the region. This marks the largest foreign outflow since 2020, highlighting how investor sentiment is shifting away from Southeast Asian stocks.
In contrast, China has seen substantial capital inflows. Chinese equity funds attracted approximately $3.3 billion in 2025, fueled by investor enthusiasm surrounding AI innovations and the booming Chinese tech sector. The contrast between the growing appeal of China’s market and the struggles of Southeast Asia is clear. As Gary Tan observes, “There is little reason to be invested in ASEAN in the near term,” signaling the frustration that investors are feeling when evaluating Southeast Asia’s economic prospects.
The FTSE ASEAN 40 index, which tracks the performance of large companies across Southeast Asia, has fallen over 4% in the first quarter of 2025, marking its worst first-quarter performance since the pandemic-induced market crashes of 2020. This poor performance highlights the ongoing struggles of the region’s stock markets as foreign investors opt for safer, more attractive opportunities in China and other parts of the world.
Declining Market Indices in Southeast Asia
The stock markets in Southeast Asia have not been immune to these broader concerns. Thailand’s SET index, for instance, has emerged as the worst-performing equity index globally in 2025, having fallen by 15% so far. Other countries like Indonesia are facing similar struggles, with Indonesia’s Jakarta Composite Index falling nearly 14% this year, hitting its lowest point since 2021. These significant declines have compounded the region's woes, creating a sense of instability and caution among global investors.
The underperformance of Southeast Asian stock markets contrasts sharply with the success of markets like Hong Kong. The Hang Seng Index, which tracks the performance of Hong Kong stocks, has increased by 17% in 2025. This sharp contrast highlights the growing allure of China’s market, especially in sectors such as AI, which continue to thrive and attract international investors.
Currency Volatility and Inflation Concerns
Another factor contributing to Southeast Asia's struggles is the volatility of regional currencies. Weakness in local currencies has compounded the challenge, reducing investor confidence. Currencies such as the Thai baht, Indonesian rupiah, and Philippine peso have struggled to maintain stability, which further erodes the appeal of investments in these nations.
Southeast Asia's overdependence on exports, combined with volatile currencies, has raised serious concerns about the long-term sustainability of economic growth in the region. Charu Chanana, Chief Investment Strategist at Saxo, acknowledged the region’s challenges, noting, “Investors' caution toward ASEAN may persist in the near term, especially as global portfolios lean toward economies with stronger growth visibility and policy flexibility.” The combination of currency issues and reduced demand for exports due to the global economic slowdown has worsened investor sentiment.
The Shift Towards China and Emerging Markets
While Southeast Asia is struggling to maintain investor interest, other markets such as China are beginning to emerge as more appealing investment destinations. The Chinese market has seen a surge in foreign capital as investor interest shifts to high-growth sectors like artificial intelligence, renewable energy, and advanced manufacturing.
The positive performance of China’s stock markets in 2025, particularly in the Hang Seng Index and other tech-heavy indices, highlights the growing optimism surrounding the country’s economic potential. As Charu Chanana mentions, “The global shift in portfolio allocations towards high-growth economies like China and India is impacting ASEAN, with investors reassessing their priorities.”
Furthermore, Southeast Asia’s relative underexposure to high-growth sectors like AI and tech-based industries has limited its appeal compared to China, which has positioned itself as a leader in these sectors. With high-tech companies leading the charge in global innovation, Southeast Asia has found it increasingly difficult to compete for investment.
Economic and Political Uncertainty in Southeast Asia
Beyond trade tensions and currency volatility, the region is also grappling with economic uncertainties linked to domestic policies and political instability. Southeast Asia has faced a series of challenges in terms of political governance, with countries like Myanmar and Thailand enduring periods of political unrest that have hindered their economic growth. Investors are often wary of markets with unpredictable political environments, further contributing to the downturn in Southeast Asian stock markets.
The lack of cohesive economic policies across the ASEAN bloc also undermines investor confidence. As economies recover from the pandemic, the need for strong policy measures to stimulate domestic consumption and promote economic stability has never been more critical. However, the lack of coordinated efforts and the emergence of different political ideologies in ASEAN countries have made it difficult to form a unified approach to addressing these challenges.
Looking Ahead: Can Southeast Asia Recover?
Despite the grim outlook, Southeast Asia still holds significant long-term potential. The region remains home to some of the fastest-growing economies in the world, with large, young populations, a burgeoning middle class, and improving infrastructure. As global economic conditions stabilize, there could be a recovery in investor confidence, particularly if ASEAN countries can address their structural challenges and position themselves for future growth.
Gary Tan suggests that Southeast Asia may need to shift its focus towards emerging sectors like AI, renewable energy, and digitalization to regain its competitive edge. The increasing role of technology and innovation in shaping the global economy presents an opportunity for ASEAN countries to attract investment and develop new growth drivers. For now, however, the outlook remains uncertain, with political stability, economic reforms, and regional cooperation being crucial to the region’s future.
The Southeast Asian stock market has come under immense pressure in 2025, with economic slowdowns, rising U.S. tariffs, and investor preference shifting towards China and other high-growth markets. The result has been a significant outflow of foreign capital, poor stock market performance, and increasing concerns about the region's ability to recover.
As economic and geopolitical challenges continue to mount, Southeast Asia faces a difficult road ahead. While there is potential for a rebound, much will depend on how the region navigates its internal challenges, strengthens its economic policies, and finds ways to tap into emerging sectors like AI. For now, the region remains in a precarious position, with investors taking a cautious approach in the face of uncertainty.
In the words of Charu Chanana, “Investors’ caution toward ASEAN may persist in the near term,” but the resilience of Southeast Asia’s economies could eventually allow them to recover and once again capture the attention of global investors.
WhatsApp
Instagram
Threads
