Thai Equities Rebound Amid Easing Political Uncertainty: Re-Rating Opportunities in Undervalued Sectors

Thailand’s equity markets, battered by a year of political turmoil, are showing early signs of stabilization as institutional investors begin to reassess undervalued sectors. The collapse of the Pheu Thai-Bhumjaithai coalition and the removal of Prime Minister Paetongtarn Shinawatra by the Constitutional Court triggered a 24% plunge in the SET Index and a $2.3 billion outflow of foreign capital in 2025 [1]. However, recent developments—including Anutin Charnvirakul’s conditional leadership and the approval of the 2026 fiscal budget—have sparked cautious optimism. This article examines re-rating opportunities in two undervalued sectors: consumer discretionary and financials, where structural tailwinds and accommodative monetary policy may drive a market rebound.

Consumer Discretionary: A Sector at a P/B Discount of 55%

The Thai consumer discretionary sector, currently trading at a P/E ratio of 14.7x and a P/B ratio of 0.5x [1][3], is significantly undervalued relative to its 5-year averages of 18.2x and 1.1x, respectively. This discount reflects both political uncertainty and cyclical headwinds, such as the 21.1% year-over-year earnings contraction in Q3 2025 [1]. Yet, the sector’s long-term fundamentals remain intact.

The Eastern Economic Corridor (EEC), a $50 billion green technology and infrastructure initiative, has secured $17.5 billion in foreign direct investment (FDI) for renewable energy and electric vehicle manufacturing [1]. This aligns with global decarbonization trends and positions Thailand as a regional hub for sustainable manufacturing. Additionally, the reduction of U.S. import tariffs for Thai exports to 19.0% has eased short-term volatility in the export-dependent sector [3]. While industries like automotive manufacturing face near-term challenges, sub-sectors such as food and beverage (driven by 5.4% YoY chicken export growth) and logistics are showing resilience [3].

Financials: A P/E of 10.9x Amid Rate-Cut Stimulus

The financial sector, trading at a P/E of 10.9x and a P/B of 0.7x [4][5], is another compelling opportunity. This valuation, below its 5-year average of 12.5x and 1.3x, reflects concerns over fiscal deficits and currency volatility. However, the Bank of Thailand’s aggressive rate-cutting cycle—reducing the benchmark rate to 1.5% in August 2025—has injected liquidity into the system [3]. Analysts predict further cuts of 0.25–0.5% in Q4 2025, driven by prolonged political uncertainty and external pressures like U.S. trade policy shifts [1].

The sector’s re-rating potential is further supported by improving asset quality. Thai banks have seen a 15% annualized earnings growth over the past three years, outpacing revenue growth of 5.8% [4], indicating operational efficiency. The FETCO Investor Confidence Index, which reached 81.06 in July 2025 [3], underscores growing confidence in the sector’s ability to weather political risks, particularly as the EEC attracts capital inflows.

Risks and the Path to Re-Rating

Political instability remains a critical risk. Thailand’s GDP growth is projected at 1.8% in 2025, lagging regional peers like Vietnam and Malaysia [2], while the baht’s 5% depreciation against the U.S. dollar complicates export competitiveness [1]. Additionally, Moody’s negative outlook on Thailand’s credit rating [2] could deter long-term investment.

However, the re-rating catalysts are clear. Structural reforms in the EEC, combined with the Bank of Thailand’s accommodative stance, could stabilize investor sentiment. For consumer discretionary, the rebound in tourism and domestic consumption—projected to contribute to 2.3% GDP growth in 2025 [3]—offers a near-term tailwind. In financials, the alignment of monetary policy with fiscal stimulus (e.g., debt relief programs) may enhance sector resilience.

Conclusion: A Strategic Entry Point for Resilient Investors

Thailand’s equity markets are at an inflection point. While political uncertainty persists, the undervaluation of consumer discretionary and financial sectors—trading at discounts of 36% and 44% to their P/E averages, respectively—presents a compelling case for re-rating. Investors who hedge currency risks and adopt a selective approach to resilient sub-sectors (e.g., green technology, logistics, and banking) may capitalize on this dislocation. As Anutin’s government navigates institutional fragility, the path to stability could unlock value for those with a medium-term horizon.

Source:
[1] Thailand's Political Instability and Its Impact on Market Volatility and Investor Sentiment [https://www.ainvest.com/news/thailand-political-instability-impact-market-volatility-investor-sentiment-2508/]
[2] Thailand's Political Instability and Its Impact on Sovereign Risk and Investor Returns [https://www.ainvest.com/news/thailand-political-instability-impact-sovereign-risk-investor-returns-2508/]
[3] Thailand's GDP to Expand by 2.3% in 2025 and 1.7% in 2026 [https://kpmg.com/th/en/home/insights/2025/08/capital-market-and-business-valuation-insights-issue-009.html]
[4] Thai (SET) Financials Sector Analysis [https://simplywall.st/markets/th/financials]
[5] Thai Banking Sector Outlook 2025: Earnings Growth, Asset Quality Improvement and Top Stock Picks [https://www.minichart.com.sg/2025/01/02/thai-banking-sector-outlook-2025-earnings-growth-asset-quality-improvement-and-top-stock-picks/]