Thailand's Political Crossroads: Can Shinawatra Steer the Stock Market to Safety?

The political crisis engulfing Thailand under Prime Minister Paetongtarn Shinawatra has reached a boiling point, with domestic unrest, international tensions, and economic headwinds converging to test her resolve—and the country's financial stability. As protests grow and coalition ties fray, investors face a stark choice: ride out the turmoil in defensive sectors or wait for clarity amid risks of a government collapse or military intervention.

The Political Tightrope: Shinawatra's Survival and Market Implications

Shinawatra's government faces existential threats after a leaked phone call with former Cambodian leader Hun Sen sparked outrage. The incident, which saw her criticize a Thai military commander and address Hun Sen as “uncle,” has galvanized anti-government factions, including royalist “Yellow Shirt” veterans. The fallout has already cost her coalition its second-largest party, Bhumjaithai, reducing her parliamentary majority to a fragile 69 seats. Legal challenges—including accusations of ethical misconduct and national security violations—further erode her credibility.

The immediate market impact has been severe. The SET Index, Thailand's benchmark equity gauge, has plummeted to a five-year low of 1,050 points, down 24% year-to-date—making it the worst-performing major stock market globally. . Foreign investors have withdrawn $4.2 billion over the past year, and the baht has weakened to 32.78 THB/USD, with risks of further depreciation to 35.00 by year-end.

Sector-Specific Risks: Tourism, Exports, and the Tariff Threat

The crisis has unevenly impacted sectors, with tourism and healthcare stocks bearing the brunt. Airlines of Thailand (AOT) faces losses as King Power cancels duty-free concessions, while healthcare stocks have dropped 15% year-to-date due to geopolitical risks and declining Middle Eastern tourist spending. Meanwhile, defensive sectors like retail (CPALL, COM7) and financials (Siam Commercial Bank) have held up better, benefiting from domestic consumption and strong balance sheets.

The looming U.S. tariff threat adds a geopolitical layer to the pain. A proposed 36% tariff on Thai exports—a decision due by July 9—could slash GDP growth to 1.5% and cost $7 billion annually. Automotive and electronics firms, which account for 25% of Thailand's $45.6 billion U.S. trade surplus, face existential risks. Auto Alliance.BK, a major auto parts exporter, could see margin pressure unless production relocations occur. .

Opportunities in the Chaos: Defensive Plays and “Friend Shoring” Bets

Despite the gloom, opportunities exist for investors willing to navigate the volatility. Defensive stocks in retail and financials offer resilience. CPALL (7-Eleven's Thai arm) and Siam Commercial Bank have shown stability due to domestic demand and strong loan growth.

Longer-term, the Thai government's push to attract “Friend Shoring” investments—U.S.-backed projects in EVs and AI—could create upside for sectors aligned with this pivot. Semiconductor firms like HANA.BK (a key supplier to Apple and Samsung) and EV component producers might rebound if tariffs are reduced to 10%, as proposed in Thailand's negotiations with Washington.

The Crucial Thresholds: When Will the Smoke Clear?

Investors should monitor three critical thresholds: 1. Coalition Stability: If Shinawatra's government collapses before July 9, snap elections could replace her with a more market-friendly administration—or a military-backed caretaker government. 2. U.S. Tariff Decision: A 10% tariff resolution would lift automotive and electronics stocks, while a 36% outcome could trigger a further 15–20% decline in export-driven equities. 3. Military Involvement: Though a coup is unlikely, any escalation of Thai-Cambodian border disputes or sustained political deadlock could revive coup fears, spooking investors further.

Investment Strategy: Wait, Diversify, and Hedge

For now, a cautious approach is essential: - Avoid: Cyclical sectors like tourism and automotive until political clarity emerges post-July. - Overweight: Defensive stocks (CPALL, Siam Commercial Bank) and infrastructure plays (Italian-Thai Development) tied to government projects. - Monitor: U.S.-Thai tariff talks and the July 9 deadline. A 10% tariff outcome could unlock gains in EV/semiconductor stocks, while failure risks a broader market sell-off.

Conclusion: Stability or Stagnation?

Shinawatra's ability to navigate this crisis—whether through coalition rebuilding, tariff resolution, or weathering protests—will determine Thailand's economic trajectory. With the SET Index trading at a P/E of 11 and dividend yields above 4%, valuations are compelling, but political risks remain elevated. Investors should prioritize liquidity and diversification, positioning for recovery only after key risks are resolved. As Bangkok's political drama unfolds, patience—and a focus on defensive assets—will be rewarded.