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A selloff in the Thai baht, underperforming stocks and pressure on the bond market reflect growing concern from global investors over political instability and the growth outlook in Southeast Asia’s second-biggest economy, analysts and fund managers say.

Thailand suffered its deepest economic contraction in two decades last quarter and a long haul to recovery looms as the COVID-19 pandemic has hammered its mainstay tourism industry.

At the same time, the government is facing a student protest movement that is gathering momentum and disruption to its policy agenda by the surprise resignation of Finance Minister Predee Daochai on Tuesday, after less than a month in the job.

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“I think no other country has these two or three problems going on at the same time, as if the COVID-19 situation isn’t bad enough,” said OCBC Bank economist Howie Lee.

Prime Minister Prayuth Chan-ocha has said Mr. Predee’s exit, for health reasons, would not affect economic plans, but he did not outline a timetable for appointing a new minister.

The baht fell and has dropped about 0.6 per cent on the dollar since Tuesday on the news, its steepest two-day slide in about two weeks. It now sits where it traded in June despite a slide in the greenback over the past few months.

Thailand’s benchmark stock index is down 17 per cent for the year, having suffered foreign outflows in every month till August – lagging a 5-per-cent gain in Asian markets.

“The only foreigners left in Thai equities really are the passive investors, the ETFs and the funds which track the index. The active managers are gone,” said Jeep Chatikavanij, founder of the Ton Poh Fund which manages US$150-million.

A global selloff in longer-dated government bonds has also hit Thailand slightly harder than elsewhere, as investors struggle to digest the big debt sales that are paying for governments’ spending.

Widening corporate credit spreads, as investors demand a greater premium for lending to Thai firms, also shows creeping default risk, said BNP Paribas’s head of ASEAN Economics, Arup Raha.

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“With headline inflation now being negative for several months, income growth is poor. That is causing some stress in the corporate sector.”

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