Foreign direct investment into ASEAN is expected to remain on an upward trajectory through 2026 and 2027, supported by artificial intelligence-related investments, supply-chain diversification under the “China+1” strategy and continued policy reforms, according to OCBC Global Markets Research.
However, the bank said governments across Southeast Asia are increasingly shifting their attention from simply attracting more investment towards securing higher-quality projects that deliver stronger domestic value-add, employment and sustainable use of resources.
Malaysia stands out for its strengthening position in electrical and electronic (E&E) products, with manufacturing investment becoming increasingly differentiated across the region. Indonesia is attracting more metals-related investments, while Thailand has recorded growing momentum in digital infrastructure and data centres.
OCBC said total FDI inflows into ASEAN reached US$245.7 billion in 2025, up from US$223.1 billion in 2024.
Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines collectively accounted for US$236.7 billion of the total, with Singapore alone attracting US$151 billion.
Early indicators for 2026 remain encouraging. FDI inflows into the six economies totalled US$60.9 billion in the first quarter, 5.5% higher than the US$57.8 billion recorded in 1Q25.
Performance, however, varied considerably across individual economies. Malaysia, Singapore and Vietnam recorded higher FDI inflows, while Indonesia, the Philippines and Thailand saw declines.
Malaysia’s Manufacturing FDI Broadens Beyond E&E
Services continued to attract the lion’s share of ASEAN investment, accounting for approximately US$200 billion in FDI inflows in 2025.
Financial and insurance activities together with wholesale and retail trade accounted for 63.5% of services inflows, while manufacturing attracted US$39.5 billion.
Within manufacturing, OCBC said the investment profile is becoming increasingly distinct across ASEAN economies.
Indonesia’s manufacturing FDI approvals were concentrated in basic metals, reflecting the country’s efforts to strengthen downstream processing and mineral-processing capabilities.
Malaysia continued to record strong foreign manufacturing investment in E&E products, but OCBC noted that investment was becoming more broad-based, extending into machinery, chemicals and basic metals.
Thailand, meanwhile, saw digital-sector investment approvals jump during 2Q26, while E&E and metals approvals also improved more gradually.
“Anecdotal evidence across the region suggests that companies are investing in data centres and the broader E&E sector,” OCBC said, adding that investment momentum has remained strong in Malaysia
Governments Become More Selective On Data Centres
Despite strong interest in digital infrastructure, OCBC noted a shift in the regulatory approach towards data centres, particularly in Malaysia and Thailand.
Authorities are placing tighter conditions on approvals because of concerns surrounding electricity and water consumption, while increasingly demanding that projects generate meaningful domestic economic benefits rather than functioning as one-off capital investments.
In Malaysia, the Ministry of Investment, Trade and Industry’s data centre framework and sustainable development guidelines require new facilities to meet minimum standards covering power usage effectiveness, carbon usage effectiveness and water usage effectiveness.
OCBC noted that all new data centres in Peninsular Malaysia must also be located in areas with a water stress index below 0.8.
Operators are required to utilise at least 85% of their declared electricity demand during their first four years or face a penalty of RM8.50 per kilowatt of shortfall per month on their electricity bills.
The trend reflects a broader recalibration of ASEAN’s approach to foreign investment, with governments seeking to balance the economic benefits of rapidly expanding AI and data centre investment against pressures on energy, water and other domestic resources.
Vietnam, meanwhile, has moved in the opposite direction in certain areas by streamlining approval requirements under its Investment Law 2025, which took effect in March 2026.
The country has introduced a “green channel” to accelerate strategic technology investments, including semiconductor, AI and data-related projects.
AI And China+1 To Keep Investment Flowing
OCBC expects the broader ASEAN FDI uptrend to remain intact despite potentially greater volatility in quarterly investment numbers as governments become more selective.
The AI investment cycle, continued reforms, ASEAN’s importance in companies’ China+1 strategies and the region’s deeper integration into global supply chains should continue directing investment into key manufacturing and services industries.
The research house said the medium-term focus is increasingly moving from the quantity of FDI towards its quality, particularly whether foreign investment creates employment, strengthens domestic value chains and uses resources sustainably.
Malaysia Records US$10.3 Billion Basic Balance Surplus
Continued FDI inflows will also be increasingly important for maintaining external stability as basic balances narrow across parts of Southeast Asia.
OCBC defines the basic balance as net FDI plus the current account balance, which provides an indication of how effectively longer-term capital flows and current-account earnings cover an economy’s external financing needs.
Malaysia was in a relatively strong position, recording a basic balance surplus of US$10.3 billion in 1H26.
That contrasted with Indonesia, which recorded the region’s widest basic balance deficit at US$11.0 billion over the same period.
The Philippines posted a US$7.8 billion deficit in 1Q26, while Thailand’s position could deteriorate significantly given its US$17.7 billion current account deficit in 2Q26.
OCBC said the volatile global environment, hawkish rhetoric from the US Federal Reserve and increasing divergence in regional policy fundamentals make stable, longer-term FDI flows even more important.
Overall, the bank expects supply-chain diversification, AI and data centre investment and policy reforms to sustain ASEAN’s FDI pipeline over the medium term.
But the next phase of Southeast Asia’s investment story is likely to be characterised less by a race for headline investment numbers and more by competition for projects capable of delivering lasting economic benefits.
“Maintaining a steady pipeline of long-term FDI will remain critical to supporting external stability and sustaining regional growth,” OCBC said.
OCBC also expects the regional monetary policy bias to remain tilted towards tightening. It forecasts cumulative rate increases of 50 basis points by the Bangko Sentral ng Pilipinas and 75 basis points by Bank Indonesia, although it sees risks of fewer hikes in 2026. For 2027, it expects policy normalisation of 50 basis points in Thailand and 25 basis points in Malaysia.
