ASEAN misses out on AI wave

Southeast Asian economies are riding high on rapid growth but have yet to unlock a stronger rally in share prices with only a limited lift from artificial intelligence.

ASEAN has been a highly exciting market in recent years. The region picked up the pace in the post-pandemic era, notching growth rates that would leave the developed world in envy. However, Southeast Asian stocks have been unable to replicate this growth, with share prices getting only a little boost.

Excitement over artificial intelligence (AI) had been the main driver of stock markets globally in 2025, but its positive effect has not substantially spilled over to ASEAN assets. US and Chinese stocks received the biggest lift from the AI boom following the successes of ChatGPT and DeepSeek, but no Southeast Asian company has been able to ride on this AI wave just yet.

Tech lift-off missing

Graph 1 captures the disparity in the performance of select Southeast Asian stock market indices against global counterparts, with the trajectory of valuations for technology companies spelling the difference. It is worth noting that for markets like Singapore and the Philippines, there is no formal sub-index dedicated to information technology (IT) firms; instead, these are lumped together with the larger industrial sector. This is indicative of the muted importance accorded to this otherwise bustling segment abroad.

Based on the data, the record-high rallies of US stocks rode high on the AI boom: for example, Nasdaq’s 16 per cent year-on-year increase is largely attributable to strong performers in the IT sector. South Korea’s KOSPI composite index likewise surged by 67 per cent during the year on the back of a 120 per cent surge in tech stocks. Japan’s Nikkei 225 rose by 28 per cent while China’s Shanghai Composite Index climbed by about 22 per cent in 2025, with both receiving a push from tech companies listed on their respective bourses. Meanwhile, Bursa Malaysia’s main index recorded a meagre 2.3 per cent pickup last year as tech shares dropped by nearly 15 per cent, while the Ho Chi Minh Stock Exchange could have easily matched South Korea’s rally given robust domestic activity if not for a 24 per cent drop in tech-related shares.

Taking a regional perspective, the iEdge Southeast Asia+ TECH Index – a thematic index that tracks the performance of the 30 biggest tech companies listed within ASEAN – rose by 10.5 per cent last year. Unlike AI-focused counterparts abroad, companies under this index are mostly engaged in software and consulting, electronic parts manufacturing, and digital services like ride-hailing giant Grab and e-commerce platform Sea. From these, it is clear that the AI wave has yet to substantially lift ASEAN equities. As a result, investors prefer betting on global stocks that offer greater AI exposure to maximise value.

Boosting productivity

Domestic economic conditions have substantially improved over the past year, largely due to lower borrowing costs as Southeast Asian central banks have reduced interest rates to spur consumption. This bodes well for shares in the region.

Lundgreen’s has maintained the view that ASEAN will remain the global growth leader for years to come, buoyed by rising household incomes while the developed world sees an increasingly squeezed middle class as wages fail to catch up with rising living costs. Emerging markets in the region are simply closing in given an abundance of highly skilled, productive labourers. Data from the International Labour Organization show that ASEAN leads major regions in terms of productivity growth, estimated at 3 per cent in 2026, against estimates of 2 per cent for both North America and the EU, and 1.4 per cent for Africa.

Meanwhile, AI-driven gains are mixed across the region. Graph 2 captures the disparity in the adoption of generative AI products and services. Singapore posted the second highest rate of AI usage globally based on data from the Microsoft AI Economy Institute, which measured the share of people who use these tools between July-December 2025. Despite this, there remains a big gap between AI usage: the Global North AI diffusion is at 24.7 per cent against 14.1 per cent in the Global South, which includes the ASEAN region. This suggests that potentially larger gains drawn from AI have been largely inaccessible for Asian and Southeast Asian economies. Microsoft, however, draws optimism from the success of China’s DeepSeek AI model in lowering costs and improving access to AI solutions for the region.

ASEAN’s AI era

Southeast Asia has a lot more catching up to do in terms of embracing AI – that is, in the adoption of AI solutions and in investing towards AI infrastructure and software. This is likely the missing piece that is keeping global investors from making new meaningful investments in the region. According to a survey of family offices and boutique asset managers, 35-40 per cent of their investors gravitate towards firms and economies that invest in AI “enablers” like data centres, power generation, and tech support services beyond acquiring shares in AI software developers. This is where ASEAN is lagging, and companies and even governments in the region should take this advice in charting their upcoming investment decisions.

ASEAN is behind the developed world in terms of building up regional AI infrastructure, but it is not too late. Strategic capital expenditures to enable wider AI adoption in Southeast Asia would be beneficial in sustaining labour productivity while also encouraging greater foreign investments into the region, and we await progress in this space.