A year of political risk for Southeast Asia

Insight: While 2026 is free of major elections across the continent’s largest economies, Southeast Asia is entering another politically charged year following an already volatile 2025. Snap elections in Thailand, anticipated state polls in Malaysia, and public-trust tests facing Indonesia’s leadership will keep domestic politics fluid, even as governments contend with cost-of-living pressures, trade volatility, and regional security risks. At the regional level, geopolitics remains elevated: border clashes between Thailand and Cambodia, transnational crime through scam compounds concentrated around the Mekong, and maritime disputes continue to blur domestic and foreign policy. While the Philippines’ ASEAN chairmanship is expected to bring a more forthright diplomatic tone, this year is set to be a true test of ASEAN’s ability to maintain unity. 

Impact: The primary risk in 2026 is not abrupt political change but constrained policymaking capacity. Fragile coalitions, public skepticism, and crisis-driven governance limit governments’ ability to pursue long-term reforms, favoring short-term stabilization over structural solutions. Economic pressures, especially amid weak household consumption, high debt burdens, and exposure to shifting US trade policies, compound this challenge, particularly in Thailand and Indonesia. The risk is that execution gaps will continue to widen; reform timelines will stretch to new breaking points; and political bandwidth will be increasingly consumed by managing risk rather than driving growth.

Chinese stocks are off to a roaring start in 2026, with the Shanghai Composite index reaching its highest level in a decade this week on continued enthusiasm for technology stocks as well as growing confidence that China’s economic fundamentals are improving, helped by policy support from Beijing.

Insight: Vietnam’s 8% GDP growth for 2025 makes it not only Asia’s fastest growing major economy; it also puts it into the top five countries globally for last year. It is the Southeast Asian nation’s best performance for three years, achieved despite trade turmoil and the imposition of a 20% tariff by the US, the main destination for its exports. And the government expects even more, targeting annual growth of at least 10% for the next five years.

Impact: It is no secret that Vietnam is benefiting greatly from both Chinese and international manufacturers diversifying their supply chains and moving production out of China, both for cost reasons and to circumvent US tariffs. The figures show just how much: last year, Vietnam’s exports to the US rose 28% to $153 billion, while its imports from China rose equally rapidly to $186 billion – giving credence to White House accusations that the country is a giant transshipment hub for Chinese goods. But there is more to the story: domestic consumption and construction grew even faster than exports, propelled by steady investment in infrastructure like highways and industrial parks, as well as pro-business reforms to reduce bureaucracy and corruption and digitalize services. Despite regular bouts of political turmoil among the Communist leadership, the government’s macroeconomic policies have been stable, and that is starting to show in the numbers. Vietnam’s economic future looks bright.

Insight: China is transforming Hainan into the world’s largest free trade port through island-wide special customs operations that treat goods entering from overseas as outside the mainland tariff system. Zero-tariff coverage jumped from 21% to 74% of goods, expanding from 1,900 to 6,600 tariff lines, while a 30% value-addition rule allows products processed locally in Hainan to enter the mainland duty free. Parallel reforms have expanded offshore duty-free shopping to 47 categories, generating RMB161 million (US$23 million) in sales on launch day alone, a 61% year-on-year surge.  

Impact: Beijing has built an offshore manufacturing platform with a mainland express lane, and the economics are compelling. For luxury brands, expanded duty-free retail shopping recaptures Chinese tourist spending while Hainan-based customization and finishing work unlock preferential mainland access. Pharmaceuticals, electronics, and specialty chemicals stand to gain even more: tariff-free inputs eliminate cost barriers while the 30% ‘local content’ threshold is achievable through routine assembly, packaging, or quality control. Hainan now sits alongside Hong Kong and Singapore and a major trade gateway, but with a decisive edge: physical integration with mainland logistics while functioning operationally as an offshore territory. It makes for a tempting location for foreign brands seeking cheaper access to China.

This is the season for predictions but rather than forecasting specific events that may or may not take place, FGS Global CEO Alex Geiser is focusing on the critical trends that will shape 2026. These range from the AI-generated energy crunch to the rise of humanoid robots and designer medicines  
 
Catch them all in this 1-minute video.