High-Stakes Thai Vote Tests Appetite for Political Reform

Thai stocks and bonds continue to struggle ahead of the February 8 general election, with the country's assets trailing most emerging markets in performance and sentiment. The ongoing political uncertainty, coupled with high household debt and weak economic growth, has led global investors to scale back exposure. The benchmark Stock Exchange of Thailand Index has historically seen short-term gains after elections but remains under pressure due to long-term structural concerns.

Business groups project economic growth for 2026 to fall between 1.6% and 2%, with exports expected to contract by 0.5% to 1.5% despite some resilience in sectors like semiconductors. The Federation of Thai Industries and the Joint Standing Committee on Commerce highlighted budget delays, fiscal limits, and rising public debt as key constraints.

Political instability and delayed policy implementation risk prolonging economic weakness. Thailand's public debt is near the legal ceiling, and financial institutions warn that populist policies being promoted by political parties could strain fiscal discipline and increase the likelihood of a credit rating downgrade.

Why Did This Happen?

Investors and analysts see limited confidence in Thailand's ability to deliver meaningful reforms. With four leadership changes in three years, policy continuity remains elusive, and structural inefficiencies continue to hamper productivity and competitiveness.

Global money managers, including T. Rowe Price, Allianz Global Investors, and Aberdeen, have reduced Thai bond holdings and remain cautious on equities until post-election clarity emerges. Some see value in Thai stocks, which trade at forward earnings multiples below the five-year average, but structural reform and fiscal discipline are seen as prerequisites for sustained recovery.

How Did Markets Respond?

Thai stocks were the worst-performing emerging market equities in 2025, while bonds have also trailed peers this year. The yield curve has steepened, reflecting expectations of interest rate cuts and increased fiscal spending. However, these dynamics have not yet translated into a broad-based recovery in equities.

Corporate earnings are showing signs of improvement, with fourth-quarter 2025 net profits of listed companies surging over 60% year-on-year. This suggests a gradual recovery, supported by tourism rebound and faster government spending. Nonetheless, market volatility remains high, with the SET index expected to trade within a narrow range ahead of the election.

What Are Analysts Watching Next?

Post-election governance will be critical in shaping investor sentiment. A fragile coalition government, as seen in past elections, may lead to uneven policy execution and delayed reforms. Analysts at Ninety One and Bualuang Securities emphasize the need for credible structural changes to lift productivity and improve the investment climate.

The outlook for Thai assets depends on the election outcome and the speed of government formation. If a government is formed smoothly by May, the SET index could reach 1,440 points, but delays could push the target down to 1,350 points. Meanwhile, Thai SMEs remain under pressure, with shrinking profits and rising non-performing loans signaling broader economic fragility.

Investors are monitoring whether the new administration can deliver on reform promises. Without meaningful upgrades to competitiveness and productivity, any post-election market rally is likely to be tactical rather than structural.