Thailand's Political Turmoil: Navigating Geopolitical Risks in Southeast Asia

Thailand's political landscape has erupted into chaos in June 2025, with a leaked phone call between Prime Minister Paetongtarn Shinawatra and Cambodian Senate President Hun Sen igniting protests, coalition collapses, and fears of a military coup. The crisis, now threatening to destabilize the economy, has sent shockwaves through investor confidence and regional markets. For portfolios exposed to Southeast Asia, understanding the interplay between Thailand's political fragility and its economic vulnerabilities is critical to recalibrating risk exposure.

The Political Crisis Unfolds

The scandal began on June 18, when a 9-minute audio clip of Shinawatra's June 15 conversation with Hun Sen was leaked. In the call, the Prime Minister criticized military commander Lt. Gen. Boonsin Padklang for mishandling Thai-Cambodian border tensions, while appearing overly deferential to Hun Sen—a move that sparked outrage among conservative and pro-monarchy groups. By June 19, Shinawatra's coalition partner, the Bhumjaithai Party, withdrew its support, stripping her government of its parliamentary majority. Protests organized by groups like the Dhamma Army and Yam Fao Paendin Foundation swelled, with planned demonstrations on June 28 aiming to force her resignation.

The political earthquake has drawn comparisons to Thailand's 2014 coup, with Deputy Prime Minister Phumtham Wechayachai openly stating a new coup “cannot be ruled out.” Meanwhile, the Constitutional Court has expedited hearings to disqualify Shinawatra, and the military has escalated border tensions with Cambodia to erode her credibility.

Economic Fallout: A Fragile Recovery Threatened

The political instability has already triggered a sharp economic downturn. Foreign investors withdrew over $2.3 billion from Thai equities by mid-June, and the shows a steep decline—down nearly 24% year-to-date, its lowest in three years.

Sectors like tourism and healthcare have been hardest hit, with share prices dropping over 15% as consumer confidence plummets. Tourism receipts fell 7% month-on-month in May 2025, driven by declining high-spending travelers from Europe and Australia. Meanwhile, banks and domestic retail firms have shown relative resilience, benefiting from steady domestic demand.

The government's 110-billion-baht fiscal stimulus and digital wallet initiatives aim to bolster household spending, but political gridlock has stalled reforms—including amendments to the Foreign Business Act—that could unlock foreign investment in key sectors like healthcare and infrastructure.

Geopolitical Risks and Portfolio Reallocation

For investors, Thailand's crisis underscores the perils of overexposure to politically volatile markets. Here's how to adjust portfolios:

1. Avoid Equity Exposure: The SET Index's volatility (and potential further declines if Shinawatra's government collapses) makes Thai equities a high-risk bet. Consider short-term hedging strategies, such as inverse ETFs or currency forwards, to mitigate losses.

2. Shift to Defensive Sectors: Focus on financials and domestic retail stocks, which have shown relative stability. Institutions like Bangkok Bank (BAKK) or retail giants like CP All (CPALL) may offer refuge due to their reliance on local demand rather than export-sensitive sectors.

3. Monitor the Baht's Slide: The Thai baht's depreciation to 32.8 against the dollar—a 5% decline year-to-date—presents opportunities in currency-hedged bonds or ETFs tracking regional currencies. Investors could also short the baht against the U.S. dollar via forex swaps.

4. Consider Regional Diversification: Thailand's instability highlights the need to diversify into more politically stable Southeast Asian markets. Vietnam's Ho Chi Minh Stock Index (HNX) or Indonesia's JSX, which have outperformed the SET in 2025, may offer better risk-adjusted returns.

5. Watch for a Policy Pivot: If Shinawatra's government survives and enacts reforms—such as passing the Foreign Business Act amendments—sectors like healthcare (e.g., Bumrungrad International Hospital) or infrastructure (e.g., Thai Viet Jet Aviation) could rebound. However, this hinges on political stability, which remains uncertain.

The Bottom Line: Caution Amid Uncertainty

Thailand's political crisis is not merely a domestic issue—it threatens regional supply chains and investor sentiment across Southeast Asia. The risk of a military coup, should Shinawatra's government collapse, would further deter foreign capital and prolong economic stagnation.

Investors should remain cautious, prioritizing liquidity and defensive allocations until the political fog clears. While Thailand's long-term potential in digital transformation and the Eastern Economic Corridor remains intact, near-term portfolios should focus on stability over growth until the current turmoil subsides.

In the words of a Bangkok-based hedge fund manager: “This isn't just about Thailand—it's a reminder that in emerging markets, political risk can undo years of economic progress in weeks.” For now, staying nimble and diversified is the safest bet.