The Thai stock market plunged nearly 2% yesterday, in line with poor sentiment across Asean after the International Monetary Fund (IMF) cut its growth projection.
Emerging markets are also concerned about the US Federal Reserve's imminent decision on quantitative easing tapering.
Analysts suggested investors cut stocks to a maximum of 30% in the portfolio.
The Stock Exchange of Thailand index fell by 1.98% or 26.04 points to close at 1,288.59 in trade worth 27.6 billion baht.
The market was dominated by a sell-off of large-cap stocks led by Krungthai Bank, which fell nearly 4% to close at 17.10 baht on speculation about its lending role in the government's rice pledging scheme.
Asia Plus Securities analyst Prakit Siriwattanages said the IMF has cut its growth forecast for emerging markets, especially the five biggest economies in Asean, while revising up its outlook for large economies like the US, Japan and China.
Developed countries' leading economic indicators have improved recently, especially in the US, whose latest unemployment rate fell to 6.7% (close to the Fed's 6.5% target) with December inflation of 1.5% far lower from 2% target.
The Fed is also predicted to decide whether it would cut its asset purchasing programme further or not at the meeting in Jan 28-29 of the Federal Open Market Committee (FOMC).
In December, the US has cut its bond purchasing programme by US$10 billion to US$75 billion a month from earlier set at $85 billion per month.
The expectation to see the US's quantitative easing scaled down has resulted in a volatility in global stock markets, especially developing countries as the investors would shift their assets away from emerging markets to chase after the higher yields in the developed markets.
Thai shares market has also faced the local political factor as the SET remains in such a poor sentiment whether or not the election will be postponed after a core leader of anti-government protesters was shot dead on Sunday during the advance voting was conducted.
Mr Prakit said investors must be cautiously monitoring the news as the situation is likely to further prolonged, prompting a concern about the severe impact on the Thai economy and earnings of listed companies.
"Whether the election takes place as planned or not, Thailand is seemingly no government over the next several months. That is a huge risk for the investors so you should take extra cautions," she said.
Tisco Securities' chief of investment strategy, Wiwat Techapulpol, said only two scenarios are expected to occur, the first one is the conflict goes violently and the military comes to take control, Thai share index will fall to below 1,200, if the Prime Minister resigns, we might be able to see 1,350 points.