Brokerage firms: Recent Thailand-Cambodia conflict triggers impacts on SET

Asia Plus Securities stated on Thursday that the recent leak of an audio clip featuring Thai Prime Minister Paetongtarn Shinawatra and Cambodia's Senate President Hun Sen has led to instability in the current government, which is now seeking the best solution for Thailand.

The brokerage firm outlined four potential courses of action that the current government could take to restore confidence in the country:

• Cabinet reshuffle: The least drastic option to stabilise the government, which could involve changing certain ministers to satisfy coalition parties. This would likely take around 7 to 14 days if there is swift consensus.
• Changing the Prime Minister: If coalition parties withdraw their support or if the government no longer has a majority in the House of Representatives, a new prime minister may be proposed. This would require a vote in the lower house, with the nominated candidate needing at least 248 votes (a majority). This process is expected to take around 30 to 45 days.
• Dissolution of Parliament: If the conflict remains unresolved, this could lead to the dissolution of parliament, triggering a general election within 45 to 60 days. This would allow the public to decide through voting. The entire election and government formation process would take approximately 75 to 105 days.
• Coup d'état: This often occurs when political deadlock reaches an impasse, usually followed by the establishment of an interim or military-led government. Should this occur, it is expected to provoke significant opposition from both the public and the international community, which would negatively affect the economy and international confidence.

If political instability in the country leads to an overhang and no clear resolution emerges, it is expected that the 2026 budget, which has already passed the first reading, will face delays, preventing votes on the second and third readings. 

This would hinder the release of funds intended to stimulate the economy in the near future, similar to the situation under the Srettha Thavisin administration earlier.

This scenario could place downward pressure on GDP growth for 2025-2026, potentially falling short of the forecasts made by several economic institutions.

Furthermore, according to a report by the Bank of Thailand (BOT), political uncertainty is expected to negatively affect economic growth and cause significant volatility. The hotel sector has been the most impacted by the political conflict, followed by the construction, real estate, and transportation services sectors, respectively.

Additionally, there is a risk that the 2026 budget approval could be postponed if the government’s stability continues to weaken.

In terms of stock market returns, or the SET index, political uncertainty often leads to short-term volatility. However, in the following period, the market generally recovers well.

That being said, the current political climate mirrors the situations seen during the dissolution of parliament in 2006 and 2013. In both instances, the SET index dropped by approximately -1.5% to -6% in the month leading up to the event. 

This suggests that the SET index is likely to experience further fluctuations, which may lead to a notable decline in trading volume until new positive factors emerge, Asia Plus Securities stated. 

The brokerage firm has projected the SET’s movement range today to be between 1,085 and 1,110 points.

Meanwhile, CGS International Securities Thailand (CGSI) stated that the recent political turmoil following the audio clip leak could prompt coalition parties to withdraw from the government, ultimately causing its collapse due to the loss of majority support.

Kasem Prunratanamala, the brokerage firm’s head of research, pointed out that before the leak, Paetongtarn’s Pheu Thai Party had already been in conflict with coalition partner Bhumjaithai, as Pheu Thai sought to reclaim the Ministry of the Interior.

Following the audio clip issue, Bhumjaithai announced its withdrawal from the coalition, and with 69 MPs from the party now absent, the government’s remaining MPs would total only 256, just 18 more than the combined opposition of 238 MPs, he said.

He added that opposition leaders have called on Paetongtarn to dissolve parliament and call for new elections. However, should the Prime Minister announce the dissolution of parliament, Thailand would need to hold a general election within 45 to 60 days. 

It is expected to take an additional 3 to 6 months for the new government to start its work. With the new government requiring about three months to form after the election, it will be difficult for the SET to perform well during this period.

Kasem maintained the SET index target for the end of the year at 1,200 points, which corresponds to a Price to Earnings (P/E) ratio of 13.4 times for next year, or -1 standard deviation from the 10-year average, as the SET has significantly underperformed its peers year-to-date, closing at 1,094 points on Wednesday (June 18).

He also emphasised that domestic defensive stocks and high-yield plays remain good options, with top picks including BDMS, CPN, ERW, GULF, MTC, and PR9.

However, he warned that the SET could face downside risks if US tariff measures impact Thailand more than expected, along with the ongoing political uncertainty. On the other hand, a potential reduction in the BOT's policy interest rate and government economic stimulus measures may support the Thai stock market.