Political instability and legal battles are eroding investor confidence in Thailand, leading to significant capital outflows. The Stock Exchange has dropped after a brief rally, while Trump’s looming tariffs raise fears of a new trade war.
Movements termed as ‘legal warfare’ against the government in the last month are understood to be undermining economic confidence. Certainly, it is one of two factors being cited for a reversal of fortunes in both the bond and stock markets during October. In short, capital has again taken flight from Thailand after a strong rally following the U.S. Federal Reserve’s decision in September to cut borrowing rates. The movement has seen the Stock Exchange of Thailand (SET) fall in the last week, while the Thai bond market lost $850 million in October.
Foreign capital has reversed course again following a change of fortune for Thailand in September. On September 18, the Federal Reserve cut its interest rate for loans by 50 basis points.
After that, capital fled the United States, heading east to emerging markets. Certainly, Thailand benefited. Indeed, the trend coincided with the Ministry of Finance’s Vayupak funds.
The resurgent Thai stock market climbed back to 1,500 points as foreign investment poured in. However, the trend has decisively reversed itself during October.
Data released this week from the Thai Bond Market Association shows that $850 million in capital exited the country’s bond market in one month. In short, it is the largest reversal since August 2023.
In the meantime, the dollar has gained 4.51% against the baht since September 27th.
SET reverses course after rally as political instability and foreign capital outflows shake investor confidence
At the same time, the Stock Exchange of Thailand (SET) has also reversed course. Certainly, in the last three months, it has risen by 12.52%, up 3.16% for the year. However, in the last five days, the market has lost 1.64% of its value after soaring to a height of 1,506.82. Previously, the market fell as low as 1,272.
Nonetheless, at this time, investors in both the bond market and stock market are nervous. The key concern at this time is the rising threat of political instability in Thailand.
In particular, the 5,088-page anti-coalition lawsuit lodged by high-profile lawyer Therayut Suwankesorn. The lawyer, who first lodged his six-pronged complaint against the government, its ruling parties, Prime Minister Paetongtarn Shinawatra, and her father Thaksin Shinawatra on September 24, has seen it taken seriously by oversight agencies.
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On Friday the 18th, the Election Commission shocked the political firmament by accepting the complaint and opening an investigation. Then, on Tuesday, the Constitutional Court lobbed another bombshell into the government’s lap. In short, it ordered the Office of the Attorney-General (OAG) to explain itself.
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The Attorney-General failed to take action on the complaint within 15 days. In turn, Mr. Therayut lodged his dossier with the Constitutional Court directly under Section 49 of the Constitution.
Undoubtedly, this case and others are highlighting the insecurity faced by political actors. In effect, Thailand’s governance is being undermined by a legal system that represents a dangerous minefield for any incumbent government that becomes the subject of those seeking to unseat it.
Political instability grows with street protests, legal challenges, and risks of global economic shocks
At this time, coming amid unprecedented economic challenges, the ongoing torrents of political complaints have created political instability and uncertainty. In addition, there are other potential substantial risks and the beginnings of street protest activities. For instance, the Prime Minister on Tuesday was forced to use an alternative gate to enter Government House.
All this follows the unseating of former Prime Minister Srettha Thavisin on August 14, after less than one year in office.
Secondly, there are also heightened concerns about the prospect of a Donald Trump victory on November 5th.
In effect, this represents two reasons for concern for Thailand. One is that Trump is associated with a more buoyant U.S. economy and a higher-valued dollar, despite the billionaire’s repeated calls for a more competitive currency.
Donald Trump’s proposed universal tariffs heighten fears of a new trade war and economic fallout in Thailand
The second is Donald Trump’s economic policy to impose a universal tariff on all imports into the United States. One Bangkok-based financial analyst this week dubbed this “Trade War 2.0.”
Certainly, the first Trump trade war in 2017 spelt disaster for the Thai economy. Indeed, Thai growth tanked thereafter and has never fully recovered.
“Selling pressure in emerging market assets amid Trade War 2.0, but the prospect of a weaker Thai economy and growing expectations of more BoT rate cuts may keep the 10-year yield at bay,” explained Poon Panichpibool of Krungthai Bank. “I do not expect further room for yields to move lower.”
In particular, he was explaining why Thai bonds are presently out of favour among investors, especially those based in Bangkok, where the weighted chances of real political instability are growing.
Certainly, another Bangkok-based analyst suggested that the political war currently playing out is undermining investor confidence.
Meanwhile, capital inflow from the United States will be delayed until after the dust settles following the November 5th election there.
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