Thailand will hold general elections on 8 February 2026 against a difficult economic backdrop. GDP growth is forecast to slow to 1.6% in 2026, with inflation remaining in negative figures. These elections are likely to result in a multi-party coalition government, with cautious sentiment persisting until policies become clear.
Expectations are that careful sentiments will dominate due to election uncertainties. This caution may last through the first half of 2026 until government formation and policy direction are established.
Economic Impact of Upcoming Elections
GDP growth is set to slow to 1.6% from slightly above 2% in 2025. If a political deadlock occurs, the budget process for FY2027 could be disrupted, affecting fiscal disbursements three to four quarters after the elections.
With the general election just days away on February 8, we anticipate a sharp increase in market volatility. Cautious investor sentiment is already priced in, but the real moves will come as the results create a picture of the incoming multi-party coalition. The uncertainty surrounding policy direction is likely to keep the market on edge for weeks, if not months.
We are seeing a significant uptick in the cost of options as traders prepare for price swings. The SET50 index’s implied volatility has already climbed to a six-month high of 22%, reflecting the market’s anxiety over a potentially fragmented government. This suggests that strategies that profit from volatility, such as buying straddles or strangles on SET50 futures, could be effective.
Currency and Market Reactions
The Thai Baht is also a key instrument to watch, as political instability could prompt capital outflows. The baht has already weakened by over 2% against the US dollar since the start of the year, and we could see further depreciation until a stable government is formed. Traders might consider buying USD/THB call options to hedge against or speculate on further baht weakness.
Looking back at the 2019 election, we recall that it took over two months to form a government, during which the SET Index saw a drawdown of nearly 4%. This historical precedent reinforces the view that any post-election rally will be short-lived until there is clarity on the new cabinet and its economic team. A similar period of gridlock and market drift is a distinct possibility this time around.
The broader economic picture, with GDP growth slowing from the 2.2% we saw in 2025 to a projected 1.6% this year, warrants a defensive posture. A potential delay in the FY2027 budget process would severely hamper public spending and further dampen growth. Therefore, buying protective puts on banking or construction sector ETFs could be a prudent move to shield portfolios from potential downside.
