Political instability in Thailand combined with trade risks have led to investors "voting with their feet" and capital accelerating outflows.

The political change in Thailand has injected a brief respite for the market, but deep-seated economic concerns still make investors tread cautiously. Following the Constitutional Court's ruling to suspend Prime Minister Prayut Chan-o-cha, the Thai benchmark SET index surged by 1.9% on Monday, but market observers generally believe that this rebound may not be sustainable. As one of the worst-performing stock market benchmarks globally this year, the SET index has still fallen by over 20% year-to-date, with political uncertainty and external risks continuing to erode market confidence. Currently, the Thai economy faces triple pressure: first and foremost, the unresolved trade negotiations with the United States. The threat of a 36% punitive tariff on Thai goods from the White House still looms large, with Thailand neither receiving specific industry exemptions nor making progress in the negotiations due to the political deadlock, casting a shadow on export prospects. Secondly, the risks of delay in the new fiscal year budget and economic stimulus package due to political turmoil could further exacerbate economic downturn pressures amid sustained weak consumption. The Thai government had already significantly reduced its 2025 economic growth forecast by 1 percentage point to 1.3% in May, far behind neighboring ASEAN countries like Indonesia and the Philippines, with a sharp decline in foreign tourist numbers adding insult to injury. Capital flow data confirms investors' cautious stance: as of June, overseas institutional investors have been net sellers of Thai stocks for nine consecutive months, with a total capital withdrawal of $3.9 billion; since the second-largest ruling party, the Thai People's Party, withdrew from the coalition government on June 18, global funds have withdrawn $324 million from the Thai bond market. This "voting with their feet" trend reflects market concerns about the possible extension of the political vacuum period, as the Constitutional Court has not announced a time limit for the review, leaving the prime minister's authority in suspended status potentially for several months. Despite a potential turnaround in the short-term political crisis, the underlying structural contradictions remain unresolved. Credit Suisse pointed out that the challenges facing the two key pillars of trade and tourism industry far exceed the political changes themselves. If the Trump administration ultimately implements the tariff threat, Thai exports will suffer a direct impact, and the expected extension of the current 10% tariff is seen by Citigroup as a potential positive, believing that it could serve as a "safety net" to stabilize the market. While the valuation discount may attract some value investors' attention, with the SET index's expected P/E ratio of 11.7 times trading at a 24.5% discount to the five-year average, professional institutions generally maintain a cautious stance. John Foo, the founder of Valverde Investment Company, warned that the dual pressure of political chaos and economic weakness could continue to weigh on the Thai stock market in the coming months. These concerns have already manifested in the forex market: the Thai baht briefly rebounded against the US dollar on Tuesday before resuming its decline, indicating that market sentiment has not fundamentally improved. This earthquake that started in the political arena is reshaping the Thai economy through the three channels of trade, investment, and consumption. Until the political deadlock is broken and structural reforms are implemented, this second-largest economy in Southeast Asia may continue to navigate through the vortex of risk aversion.