Geopolitical Shock and Sectoral-Market Responses: Evidence from Emerging ASEAN Markets

Abstract

This study examines whether the 2026 U.S.-Israeli military escalation against Iran generated heterogeneous stock-market responses across sectors and countries in emerging ASEAN markets. Using daily data for Indonesia, Malaysia, Thailand, and the Philippines from 2 December 2025 to 2 June 2026, the analysis constructs a country-sector panel based on three harmonized sector proxies: Commodity, Financial, and Real Economy. The market event date is set at 2 March 2026, the first ASEAN trading day after the 28 February 2026 escalation, with 26 February-2 March 2026 defined as the event/anticipation window and 3 March-2 June 2026 as the post-event period. The empirical model estimates panel regressions with country and sector fixed effects, controlling for domestic market returns, exchange-rate depreciation, Brent crude oil returns, MSCI Emerging Markets returns, and changes in the CBOE Volatility Index. The baseline results show that sectoral returns declined significantly during the post-event period, but the immediate event-window effect is not statistically significant. However, interaction tests provide no robust evidence that the shock produced statistically different responses across Commodity, Financial, and Real Economy sectors, or across the four ASEAN countries. Instead, domestic market returns and MSCI Emerging Markets returns consistently explain sectoral return variation, suggesting that the event was absorbed mainly through broad market and emerging-market spillover channels rather than through sharply differentiated sectoral or country-specific channels. The findings qualify the sectoral-heterogeneity argument in geopolitical-risk research by showing that theoretically plausible transmission channels may remain empirically muted when common regional and global market factors dominate overall.