Investors flee Thai equity funds amid latest political turmoil

The latest episode involves Prime Minister Paetongtarn Shinawatra, who was suspended in the wake of her leaked phone call to Hun Sen, Cambodia's former leader.

Conservative lawmakers accuse her of undermining the nation's military in the wake of a deadly May 28 skirmish on the two nations' border. (The suspended prime minister comes from a political dynasty in Thailand; her father, who also once led the country, had been viewed as close to Hun Sen before the former Cambodian leader leaked the phone call and criticized the family.)

As the crisis unfolded, international fund-flow data from our partners at EPFR showed two contrasting dynamics in capital flows.

Equity funds experienced net outflows as risk sentiment deteriorated. These outflows grew worse after Shinawatra's suspension.

Bond funds, meanwhile, saw substantial inflows as soon as the phone call was leaked. This flight to safety pushed the 10-year government bond yield below the Bank of Thailand's key policy rate — signalling that markets expect looser monetary policy will come soon. (The central bank left rates unchanged on June 25, saying it needed to save policy room to support the economy given the effects of US tariffs and the political crisis.)

Turning to the stock market, the benchmark SET index initially declined as the crisis began, but had recovered somewhat by the end of the month. Market reports suggested the likelihood of more rate cuts had stirred local optimism.

We've also tapped data from GFI / Fenics to chart Thailand's sovereign borrowing costs relative to US benchmark equivalents. The curve widened modestly in response to the crisis, indicating a mild repricing of sovereign risk.

However, financing costs remained well below the levels seen in the wake of Donald Trump's "Liberation Day" shock to global markets and ASEAN exporters — a sign that while markets are pricing in short-term instability, they are not yet anticipating structural deterioration in Thailand’s creditworthiness.