You can do it without setlocal, because of the setlocal command the variable won't survive an endlocal because it was created in setlocal. In this way the variable will be defined the right way.
To do that use this code:
set var1=A
set var2=B
set AB=hi
call set newvar=%%%var1%%var2%%%
echo %newvar%
Note: You MUST use call before you set the variable or it won't work.