The Stock Exchange of Thailand (SET) index could plunge to a new low of less than 1,000 points, attributed to fresh political upheaval that could collapse the Paetongtarn Shinawatra government and dissolve the House of Representatives, say analysts.
The Thai index dipped by 2.2% in the first hour of trade on Thursday, falling to a five-year low the day after Bhumjaithai, the government's second-largest party, quit the ruling coalition.
The party cited a loss of trust after a call with former Cambodian leader Hun Sen revealed tensions between the civilian government and the military.
Declining for a sixth consecutive day, the gauge has plunged by 23% this year, making it the worst performer among the world's major bourses.
"Facing a series of headwinds this year, political uncertainty is now the biggest factor pressuring the SET," said Kitpon Praipaisarnkit, vice-president of UOB Kay Hian Securities, citing a high probability that the Thai index could fall further.
With government stability shaky, analysts see two main scenarios for Thai politics: the premier's resignation or the dissolution of parliament.
"In the view of analysts, the worst scenario for the stock market would be the current government continuing its role, while the best option is House dissolution," said Mr Kitpon.
Bhumjaithai's exit threatens the government's stability, weakening the fragile coalition formed in 2023. Outside parliament, protesters began gathering near Government House on Thursday morning, demanding the resignation of the premier.
Prakit Siriwattanaket, managing director of Merchant Partners Asset Management, said domestic politics has reached a critical point.
He said the leaked audio clip of the phone call between the Thai premier and Hun Sen raised concerns about Thailand's diplomatic positioning.
"The leaked clip suggests intertwined interests between the two national leaders, fuelling fears that national resources may be used as bargaining chips," said Mr Prakit.
"This severely undermines public trust in national leadership."
He said while dissolving parliament now would have serious consequences, clinging to power could provoke rising public dissatisfaction, a deepening crisis of confidence, and heightened concerns over the government's handling of the border dispute with Cambodia.
"Protests may erupt, increasing the risk of a military coup, the outcome markets fear most," said Mr Prakit.
The SET index is also at risk of plunging below 1,000 points in highly volatile conditions, he said.
The best scenario for the stock market would be the premier resigning, allowing parliament to appoint a new leader from a list of candidates to form a new cabinet, said Mr Prakit.
Veeravat Virochpoka, head of research at FSS International Investment Advisory Securities, said the Thai stock market still has downside risks.
"Stock market sentiment remains fragile among both local and foreign investors, as well as institutional investors, which continue to offload Thai stocks to reduce their risk," said Mr Veeravat.
"There is no rush to enter the Thai market, as investors should wait for the political situation to ease first."