Oil's return to triple digits is redrawing the regional pricing landscape. Escalating Middle East conflicts have driven crude above $100 per barrel, transmitting energy costs into inflation and interest rates. With heightened bets on Federal Reserve hikes and a simultaneous European Central Bank move, the global rate anchor has shifted higher, becoming the dominant variable for ASEAN asset pricing this period. Thailand recorded its first current account deficit in eight quarters, driven primarily by the oil price surge inflating import costs, though this is expected to moderate. Indonesia's deficit hit a record high, almost entirely attributed to the oil and gas trade gap. These are largely temporary factors pressuring the Thai Baht, while the Indonesian Rupiah's recovery depends more on oil price stability and coordinated fiscal-monetary policy. The export dividends from the AI cycle are now jointly reshaping the region's external balance alongside a surge in imports.
Equities: Global declines contrasted with mixed regional results as oil and rates pressured valuations. ASEAN dipped 0.54% overall, showing resilience while funds rotated toward defensive and energy-beneficiary markets. Malaysia faced double pressure from accelerated foreign outflows and oil-driven cost increases; Vietnam weakened on foreign selling pressure; the Philippines led gains with a rebound from undervalued levels, driven by local liquidity and oversold corrections.
Currencies: With only a limited dollar pullback, trade fundamentals dictated relative strength. The Indonesian Rupiah was among the most stable regional currencies, supported by foreign inflows and recovering reserves; the Singapore Dollar and Vietnamese Dong appreciated modestly. The Philippine Peso extended its losing streak as high oil prices widened the current account deficit and foreign outflows persisted, with central bank hikes failing to stem the depreciation. The Malaysian Ringgit gave back gains, but its supporting AI supply chain narrative and trade surplus logic remain intact, with the pullback largely reflecting portfolio rebalancing. The Thai Baht slid to a one-month low as gold-selling support faded and its policy rate disadvantage widened.
Bonds: All six ASEAN central banks held policy rates steady during this window, but Malaysia's central bank delivered the only material hawkish signal by dropping the word "appropriate" from its statement in a seventh consecutive hold. External constraints loom large as US yields hit multi-year highs, significantly squeezing any further regional tightening space. Long-end yields rose across the board, though internal divergence was dictated by foreign flows and inflation paths.
Commodities: Energy and agricultural prices diverged while industrial metals squeezed manufacturing margins. Natural gas fell over the fortnight while agricultural products remained firm. Nickel prices weakened, aluminum edged higher, but the overall impact on ASEAN followed a resource-beneficiary versus manufacturing-squeezed pattern. We highlight four key investment strategies: Indonesia's policy-driven valuation recovery favoring undervalued banks, tobacco, staples and telecoms; Malaysia's supply contraction and consumption downgrade theme favoring plantations and value retail; Singapore's defensive rotation toward high-yield REITs and select mid-cap growth names; and Thailand's tourism recovery story focused on hotels, aviation, healthcare and data center industrial real estate.
Fresh oil-driven inflation pressures are testing external balances as import costs climb. Fed policy direction and Middle East developments remain the two external pillars guiding ASEAN asset pricing. Elevated US Treasury yields and geopolitical uncertainty continue to unsettle markets, but extreme fears of uncontrolled energy costs have eased. Meanwhile, the AI cycle's export dividends are reshaping the region's external balance amid a surge in imports.
Thailand's external position is the most strained with an eight-quarter-first current account deficit of $17.7 billion, mostly from oil-induced import costs, though July's narrowing suggests this is a temporary phase. Indonesia's record $12.5 billion deficit is almost wholly driven by oil and gas trade. The Baht's weakness is therefore more cyclical, while Rupiah recovery hinges on oil stabilization and policy coordination.
Singapore: Exports and earnings provide dual support. July non-oil domestic exports maintained growth above 20% with electronics doubling year-on-year, though non-electronic segments remained sluggish. Inflation hit a two-year high but came in below expectations. The equity market stayed steady with construction, property and REITs performing well, while institutions sold into retail buying.
Malaysia: A hawkish tilt without action. The central bank dropped the word "appropriate" and raised its growth forecast while emphasizing that external demand strength has limited wage spillover, meaning conditions for a hike this year are not yet ripe. The KLCI ended August flat, lagging regional peers, with foreign holdings at record lows offset by domestic buying.
Thailand: Inflation remains manageable and the economy shows better-than-expected resilience. July data displayed strength driven by stimulus, lower oil prices and AI momentum, with the trade deficit narrowing sharply month-on-month and beating forecasts. August inflation slightly exceeded expectations, but with both retail fuel and electricity prices falling, full-year inflation could stay under 2%, supporting the central bank's hold.
Indonesia: Narrowing oil and gas deficits do not mask twin-deficit risks. The July trade surplus met expectations, primarily from improvement in the oil and gas gap, yet current account pressures persist. The Rupiah has recovered from lows, but sustained improvement relies on oil price stability and policy coordination.
Singapore's market remained steady with the SIMSCI up 3.55% in August, tracking global indices. Positive US corporate earnings offset concerns over rising Treasury yields and Middle East tensions. Agriculture, internet and financials led sector performance. Hotter weather and intensifying El Nino conditions, expected to persist through 2027, could support crude palm oil prices. Institutional investors were net sellers throughout the past four weeks, concentrating sales in financials, while retailers were consistent net buyers.
Singapore's export momentum is strong and inflation remains contained. July NODX grew 24.2% year-on-year, with electronics surging 112% on the back of disk drives, PCs and integrated circuits, while non-electronics declined 2.3%. Inflation rose to a two-year high but undershot consensus as power and services costs pushed core prices up. Private home sales jumped 368.6% month-on-month driven by new project launches.
Malaysia's central bank held the policy rate at 2.75% for a seventh consecutive meeting, aligning with expectations. The statement tilted hawkish by removing the word "appropriate" and expressing greater confidence in growth, expecting 2026 GDP around 5.0% while noting resilience continuing into 2027. However, overall inflation remains contained, and the bank highlighted limited wage spillover from external demand, suggesting conditions for a hike are not yet mature. July CPI eased to 1.8%. The KLCI ended August marginally higher, lagging its regional counterparts which gained over 3%. Utilities, construction and energy led sector gains, while REITs, consumer and telecoms lagged. Foreign holdings dropped to a record low of 18.1% as net outflows continued, but local institutions and retail buying provided some offset.
Lower costs and policy support could sustain earnings momentum into the third and fourth quarters despite logistics and raw material pressures in Q2. Fuel price adjustments from June-July and declining input costs from their March-May peaks should support Q3 performance, with additional tailwinds from resumed fuel subsidy quotas and the upcoming budget presentation.
Thailand's economy showed resilience in July, driven by stimulus measures, lower oil prices and AI momentum. Private consumption rose 1.2% month-on-month and private investment grew 12.9% year-on-year. Exports expanded 21.6% while imports grew 36.7%, with the trade deficit narrowing to $3.61 billion from $6.53 billion in June. The current account deficit came in at $1.6 billion, better than expected. Intervention in the currency market appears to be moderating, as reserves declined to $275.45 billion.
With geopolitical risks easing, GDP growth could reach 2.5% in 2026. August inflation rose 2.5% year-on-year, slightly above consensus, while core inflation met expectations at 1.4%. Retail fuel prices have fallen about 10% from Q2 levels, and electricity tariffs were reduced for the September-December billing cycle. With Q1 inflation negative and SME price increases moderating, full-year inflation is expected to remain below 2%. Despite expectations for a stronger second half, the economy remains fragile, supporting expectations for the central bank to maintain its rate at 1.00% through 2027.
Indonesia's trade balance posted a modest $120 million surplus in July as the oil and gas deficit narrowed 21% from its May peak. However, the current account deficit is projected at 1.5% of GDP for 2026, with pressures continuing from rapid growth in non-transport services imports and elevated soft commodity prices. The Rupiah strengthened 3.5% from its June low to 17,536, supported by a weaker dollar, the end of dividend season, central bank hikes, and smooth leadership transition. The currency remains significantly undervalued and demonstrates resilience despite the high oil price environment and rising global yields.
Structural reform is the key to transitioning the Rupiah from cyclical gains to fundamental support, as both sides of the balance of payments show strains. The current account faces pressures from accelerating non-transport services imports and elevated dividend repatriation, while the financial account shows decelerating FDI, contracting portfolio investment and resident capital outflows. If high oil prices widen twin deficits and the Fed raises rates repeatedly, the Rupiah could come under renewed pressure. Comprehensive structural reforms are essential to shield the economy from external vulnerabilities.
ASEAN equities fell 0.54% during the fortnight, with divergent internal performance. Malaysia dropped 2.27% as accelerating foreign outflows and elevated Brent costs pushed the FBM KLCI below 1,700 points. Vietnam declined 2.01% as the VN-Index lost the 1,800 level on foreign selling. The Philippines led gains at 1.77%, recovering from undervalued territory on local buying and oversold bounces. Thailand rose 1.03% to reclaim the 1,600 level. With oil prices and Treasury yields both elevated, regional funds rotated toward defensive and domestically-driven markets while export and foreign-dependent markets bore greater pressure.
The US dollar index retreated during the fortnight as markets reduced exposure ahead of the Fed meeting and inflation data. Asian currencies mostly appreciated against the dollar, with the yen leading gains at 3.0% and the Korean won up 1.9%. Within ASEAN, the Rupiah gained 0.5%, the Singapore Dollar edged up 0.2%, and the Dong rose 0.1%. The Philippine Peso weakened 1.3% to 62.7, extending its downturn as oil prices widened the current account deficit and foreign outflows continued for a fifth consecutive week. The Ringgit depreciated 1.2% to 4.06, reflecting portfolio rebalancing after significant prior gains, while its underlying AI supply chain and trade surplus narrative remains unchanged. The Baht fell 0.5% to a one-month low as support from gold-selling faded, its interest rate disadvantage widened, and terms of trade deteriorated under high energy prices. The Rupiah was among the most stable regional currencies, supported by foreign inflows and reserves rising to $146.5 billion.
ASEAN policy rates entered a holding pattern. All six central banks stood pat during the window, with Malaysia's statement tilt the only substantive hawkish signal. External constraints are significant - market pricing suggests around an 89% probability of a Fed hike, the ECB raised again, and the 10-year Treasury yield reached a near three-year high of 4.963%. This has substantially squeezed any further regional tightening space. Five of six 10-year government bond yields rose during the period: Malaysia 4.18% (+32bp), Philippines 7.47% (+19bp), Thailand 2.30% (+18bp), Indonesia 7.10% (+14bp), and Singapore 2.46% (+12bp). Vietnam's yield was the only stable one at 4.57%. Malaysia's long end rose most on foreign selling and oil cost pressures; the Philippines' bond market reflects the challenge of stabilizing long-end yields through rate hikes alone; Vietnam showed resilience; and Singapore and Thailand saw yields drift higher with external rates.
Commodities presented a mixed picture. Natural gas fell 2.12% over the fortnight but rose 2.62% monthly. Agricultural products led gains, with Malaysian palm oil up 3.54% over the fortnight and 6.91% monthly, and Chinese natural rubber ahead 4.52% over the fortnight and 10.43% monthly. Industrial metals diverged: nickel futures fell 1.34%, LME tin dropped 2.49%, while LME aluminum gained 1.61% over the fortnight despite a monthly decline. The overall impact on ASEAN follows a "resource nations benefit, manufacturing nations bear costs" pattern, with manufacturing-oriented economies needing to watch raw material cost pressures on profit margins.
Fed policy path and Middle East developments continue to be the two dominant external factors for ASEAN asset pricing. While US Treasury yields and geopolitical uncertainty persist as headwinds, the extreme anxiety over uncontrolled energy costs has moderated considerably. We remain constructive on four major themes: Indonesia's policy-driven valuation recovery focused on banks benefiting from rate cycle management, tobacco from new excise tiers supporting formal sector transition, staples benefiting from the free nutritious meal program, and telecoms positioned as the next AI infrastructure play. Malaysia's supply contraction favors plantations with El Nino production cuts and biodiesel blending mandates, while consumption downgrades boost value retail demand. Singapore's defensive allocation favors banks and REITs with attractive yield spreads. Thailand's tourism recovery benefits hotels and airlines, while healthcare bottoms and data center industrial properties gain from strategic infrastructure transformation.