Analysts recommend a focus on high-dividend, low political-risk stocks in the third quarter of this year.
They said the suspension of the prime minister by the Constitutional Court on Tuesday had a minimal impact on investor confidence as the cabinet remains fully functional and can proceed with the 2026 budget deliberations without disruption.
Apichart Phubancherdkul, head of strategy research at Tisco Securities, said the brokerage downgraded its year-end Stock Exchange of Thailand (SET) index target to 1,208 points due to rising risks, down from 1,337.
The company also slashed its 2026 year-end target to 1,279 points, down from 1,405, citing headwinds including political instability, a static tourism recovery and global trade tensions.
"Given elevated uncertainty, it's prudent to lower growth expectations for the Thai equity market," said Mr Apichart.
Tisco expects the SET index to fluctuate between 1,000 and 1,160 points in July, and it remains cautious about the outlook for the second half of 2025.
The bourse has underperformed regional peers, declining 22% year-to-date, compared with gains of 8% for the MSCI World index and 14% for the MSCI Asia ex-Japan index.
Political instability in Thailand continues to be a key concern, noted the brokerage.
The withdrawal of the Bhumjaithai Party, the second-largest coalition partner, reduced the government's parliamentary support to 261 out of 495 MPs, posing a major challenge for the passage of the 2026 budget bill, scheduled for parliamentary debate in early July.
Other political risks include a Constitutional Court ruling on the premier's qualifications, potential no-confidence motions, ongoing legal proceedings against former leaders and the possibility of escalating public protests in the third quarter.
In addition, early July marks the end of a 90-day grace period imposed by US President Donald Trump for negotiation on his announced reciprocal tariffs on several trading partners.
Although a deadline extension is possible, the absence of finalised trade agreements could weigh on global consumption and investment sentiment, increasing the risk of an economic slowdown in the second half of the year, according to Tisco.
The brokerage warned Thailand may enter a technical recession in the second half of 2025, driven by both domestic and external pressures, including escalating global trade tensions, a sluggish tourism recovery and persistent political uncertainty, which could result in a policy vacuum.
In terms of investment strategy, Tisco recommends investors focus on second-quarter earnings winners and high-dividend stocks, which are expected to outperform in July. Key picks include: Advanced Info Service (ADVANC), Bangkok Commercial Asset Management (BAM) and Prima Marine (PRM).
Stocks relatively insulated from political turmoil that have strong balance sheets are also favoured, such as Gulf Development (GULF), Hana Microelectronics (HANA) and Praram 9 Hospital (PR9).
Asia Plus Securities (ASPS) views the Thai equity market as one of the cheapest globally, with a price-to-book value (PBV) of less than 1 times, compared with 3 times for the MSCI All-Country World index.
With a projected 2025 dividend yield of 4.8%, Thailand remains attractive to investors, provided key risk factors ease, noted the brokerage.
Despite ongoing third-quarter risks such as Middle East conflicts, global trade disputes, Thai-Cambodian tensions and domestic political unrest, ASPS believes the Thai market has strong rebound potential if these concerns subside.
Key rebound stocks include PTT, Siam Cement (SCC), CPALL, Bangkok Dusit Medical Services (BDMS), True Corporation (TRUE) and Plan B Media (PLANB).
ASPS also expects foreign and institutional selling pressure to ease. Outflows from long-term equity funds total 117 billion baht and are expected to decline gradually.
With foreign ownership in Thai equities falling to just 24.2%, there is significant upside potential if foreign investor sentiment improves, said the brokerage.
UOB Kay Hian Securities (Thailand) said the prime minister's suspension is unlikely to paralyse government operations.
The government can continue with essential responsibilities, including the 2026 budget bill. As a result, the likelihood of a major economic disruption is low, according to UOB analysts.
"We expect a court resolution within three months," noted the brokerage.
"Regardless of whether the prime minister remains or is replaced, key legislation such as the budget is likely to proceed, reducing the risk of fiscal drag."
UOB said externally driven sectors, such as petrochemicals, packaging, major retail and tourism, have already seen substantial corrections and now offer attractive value opportunities.
The brokerage recommends Indorama Ventures (IVL), SCG Packaging (SCGP), CP Axtra (CPAXT), CPALL, Minor International (MINT), Central Plaza Hotel (CENTEL), Erawan Group (ERW) and Siam Wellness Group (SPA).