Geopolitical Tensions in Southeast Asia: How Thailand-Cambodia Disputes Are Shaking Regional Markets

The simmering border dispute between Thailand and Cambodia, rooted in colonial-era territorial claims and amplified by recent military clashes, has introduced a new layer of geopolitical risk to Southeast Asian markets. Since May 2024, tensions have spilled over into economic sanctions, disrupted trade flows, and measurable impacts on regional equities. Investors must now navigate a landscape where national pride, military posturing, and diplomatic stalemates are reshaping sectoral valuations and cross-border business prospects.

The Conflict's Economic Toll

The SET Index, Thailand's benchmark equity market, has reflected this volatility. Since May 2024, it has shed 4.8%, with further declines to 1,110 points in mid-2025 as geopolitical risks intensified. Foreign investors, particularly those focused on emerging markets, have been net sellers of Thai equities, offloading positions to the tune of 1.13 billion baht. This sell-off underscores the broader sentiment that unresolved territorial disputes and escalating military threats are deterring capital flows to the region.

Sector-Specific Winners and Losers

The conflict's ripple effects are uneven, creating opportunities and risks across industries:

Defense: A Boom in Arms and Security

Defense contractors like Thai Aerospace Industries (TAA) and Siam Defense Systems (SDS) have surged as Thailand ramps up military spending. Orders for drones, surveillance systems, and armored vehicles—part of the Special Operations Centre's (SOC-TCBSM) initiatives—have driven a 15% outperformance over the broader market. Meanwhile, cybersecurity firms such as Thai ICT Solutions (TICS) and CyberSecurity Malaysia are benefiting from digitized border controls and rising cyber threats. Investors seeking exposure to geopolitical risk mitigation should prioritize these firms, which are positioned to capitalize on Southeast Asia's defense modernization trends.

Tourism and Agriculture: Crossfire Casualties

Tourism stocks like Minor International (MINT), which relies on Cambodian visitors to Thailand's resorts and temples, have suffered. Preah Vihear Temple tourism, a key revenue driver, has collapsed, while cross-border travel bans have stifled demand. Similarly, agricultural exporters such as Charoen Pokphand Foods (CPF) and Thaifoods Group (TFG) face disruptions. Cambodia's 18% drop in cassava exports to Thailand in Q2 2025—critical for Thai animal feed production—has forced companies to seek costlier alternatives. Investors should underweight these sectors until border stability returns.

Infrastructure: Stalled Ambitions

Projects like Cambodia's high-speed rail and Thailand's Eastern Economic Corridor (EEC) face delays as cross-border collaboration falters. The Gulf of Thailand's $557 billion gas reserves and rare earth deposits near Preah Vihear remain untapped due to unresolved territorial claims. While domestic Thai infrastructure firms insulated from Cambodia's markets may still offer value, cross-border ventures are best avoided until diplomatic progress materializes.

Investment Strategy: Navigating the Geopolitical Minefield

1. Overweight Defense and Cybersecurity: Allocate to companies like TAA and TICS, which are beneficiaries of rising military budgets and digital border security needs.
2. Underweight Tourism and Agriculture: These sectors remain exposed to border closures and trade restrictions until tensions de-escalate.
3. Focus on Domestic Thai Sectors: Industrial REITs like Global Logistic Properties (GLP) and healthcare providers with minimal cross-border exposure offer stability.
4. Avoid Cross-Border Infrastructure: Investors should prioritize Thai domestic projects over ventures requiring Cambodian collaboration until territorial disputes are resolved.

The ASEAN Factor: Can Regional Stability Be Restored?

While the Association of Southeast Asian Nations (ASEAN) has been ineffective in mediating the dispute, Malaysia's offer to act as a mediator hints at regional unease. A resolution could unlock pent-up demand in tourism and infrastructure, but until then, investors must treat Thailand-Cambodia ties as a persistent headwind.

Conclusion: Geopolitics as an Active Risk Factor

The Thailand-Cambodia conflict is no longer a distant historical grievance but a live geopolitical risk reshaping equity markets. While defense and cybersecurity firms thrive on instability, tourism and agriculture sectors face existential pressures. Investors must balance opportunism in defensive sectors with caution in those vulnerable to cross-border friction. The path to stability lies in diplomatic breakthroughs, but until then, portfolios should be structured to withstand prolonged uncertainty.

Consider diversifying into Thai domestic equities and defense plays while hedging against further sanctions-driven volatility.