As 2025 nears its end, investors must prepare for potentially intensified volatility caused by a combination of internal and external risk factors. These include the clearly slowing global economy, diverging monetary policies among major central banks, the risk of a global fiscal crisis, and Thailand's political turmoil following the dissolution of parliament on 11 December. This political vacuum and the lack of new economic stimulus have placed the Thai stock market under pressure. InnovestX therefore points out five key risk issues that investors should closely watch.
The first risk is the clear slowdown of both the global and Thai economies. Thailand's GDP growth in the third quarter was only 1.2%, well below market expectations, reflecting pressures from several areas such as contraction in government spending and investment, a slowdown in service exports, and increasing risks ahead including southern floods, the conflict with Cambodia, volatile agricultural prices, and rising political uncertainty.
On the global front, the economy is entering a downturn cycle, particularly in the US, where the labor market is weakening, with the latest private sector employment (ADP) figures showing a decline. China faces 'three traps' — deflation, liquidity issues, and a real estate crisis — amid monthly economic indicators such as exports, retail sales, industrial production, and fixed asset investment slowing or contracting further.
Meanwhile, Thailand continues to face unresolved structural problems amid negative factors. InnovestX maintains its GDP forecasts for Thailand at 1.8% for 2025 and 1.4% for 2026, with the fourth quarter of 2025 and first quarter of 2026 expected to experience the most significant slowdown.
The second risk involves global monetary policies entering an era of clearly divergent interest rate directions, termed the 'Great Divergence'. At the Federal Open Market Committee (FOMC) meeting on 17-18 December, the US Federal Reserve cut interest rates by 25 basis points to 3.50-3.75%, as expected. However, concerns arose from a 'Hawkish Cut' signal, with the Dot Plot indicating only 1-2 rate cuts in 2026, fewer than the market anticipated. Meanwhile, Japan plans continued rate hikes, Europe, New Zealand, and Canada have stopped cutting rates, the UK continues to cut, and China is easing monetary policy to combat deflation. These dynamics increase volatility in exchange rates and capital flows.
Furthermore, the Fed's independence is under threat from political pressure, especially with the expected Fed chair change in May 2026, possibly to Kevin Hassett, a Trump ally who is likely to pursue aggressive rate cuts (Dovish). The soaring US national debt may lead to 'Fiscal Dominance,' where fiscal policy overrides monetary policy, potentially causing severe dollar depreciation and reducing its credibility.
The third risk stems from domestic issues, particularly long-accumulated structural problems in Thailand's economy. :
(1) Deflation caused by tight liquidity amid over eight months of negative inflation.
(2) Private sector investment has yet to recover, contracting by more than 8% on average since the start of the year.
(3) Fiscal policy may slow down due to political problems.
(4) Exports face risks from transshipment issues that could lead to US tariffs as high as 40%.
The fourth risk is the political crisis triggered by the dissolution of parliament on 11 December, which impacts the economy in seven ways. :
(1) Cancellation of stimulus measures causes consumers to delay spending.
(2) Foreign direct investment slows as investors await policy clarity.
(3) If the conflict in Thailand intensifies and persists, a state of emergency might be declared, postponing elections.
(4) The 2027 budget could be delayed.
(5) Tax negotiations with the US and free trade agreements with other countries will likely be postponed.
(6) Infrastructure projects worth 5.1 trillion baht (including high-speed rail connecting three airports, the Eastern Economic Corridor, and others) may be stalled, along with delays in other investment disbursements.
(7) Concerns over fiscal policy include difficulty in achieving the plan to reduce the deficit to 2.1% of GDP by 2030, as the 2027 budget bill has not yet been approved by the cabinet, increasing fiscal risks.
The fifth risk is the expected high volatility of the Thai baht. Although InnovestX forecasts the baht to average 32.9 and 32.2 baht per US dollar in 2025 and 2026 respectively, the baht is expected to peak at 31.8 baht per dollar in Q4 2025 to Q1 2026, driven by Fed rate cuts. However, in the second half of 2026, the baht may weaken back to 32.4-32.7 baht per dollar if the Fed slows its rate cuts relative to the Bank of Thailand, while long-term US Treasury yields (10-year) are expected to rise after being low in Q4 2025 to Q1 2026, increasing currency and financial market volatility.
Amid these risks, the recommended investment strategy is a 'Selective Buy' approach across three main themes.
The first theme is defensive stocks. These are companies whose performance can withstand external volatility, with expected strong profits in Q4 2025, including ADVANC, BDMS, BEM, BGRIM, GULF, and PTT.
The second theme is high-quality dividend stocks to generate cash flow and reduce portfolio volatility. These include long-term dividend stocks with expected yields above 5% annually such as AP, DIF, KTB, PTT, and TISCO, as well as short-term dividend stocks for a six-month investment horizon like BAM, KBANK, SAT, THANI, and TLI.
The third theme is stocks expected to benefit from entering a declining interest rate cycle. It is anticipated that the Bank of Thailand will cut policy rates once more on 17 December and two more times in 2026. This benefits stocks with lower financing costs such as CENTEL, GPSC, TRUE; those benefiting from improved consumer purchasing power like AP and MTC; and REITs such as DIF, FTREIT, and LHHOTEL.
In summary, the SET index may face short-term declines due to concerns over Thailand's political vacuum and lack of new stimulus measures, along with anticipation of the Bank of Thailand's monetary policy meeting on 17 December. Investors should manage portfolios cautiously, focusing on stocks with strong fundamentals that can withstand volatility and possess unique positive factors, while closely monitoring domestic political developments, global central bank policies, and global economic dynamics. The year 2026 will be challenging yet full of opportunities for prepared investors.
We wish investors good luck.