BANGKOK, July 27 — For years, Thai equities were among Southeast Asia’s largest stock markets. However, Malaysia and Singapore are now poised to overtake Thailand, which is set to lose its long-standing number two spot in market capitalisation.

According to data compiled by Bloomberg, the gap between Thailand and Singapore has widened from about US$14 billion to US$125 billion over the past year.

Thailand’s decline stems from a mix of political and legal instability, weaker-than-expected tourism spending, and allegations of corporate misconduct. These factors have driven a 14 per cent selloff in the benchmark Stock Exchange of Thailand Index over the last 12 months, marking the most significant decline among major global benchmarks.

According to the business news outlet the market is likely to remain a value trap until the economic and corporate earnings growth outlook improves, said Alan Richardson, a fund manager at Samsung Asset Management Co.

The total market capitalisation of companies traded on Thailand’s exchanges was approximately US$440 billion as of Thursday, marginally ahead of Singapore at US$426 billion and Malaysia at US$422 billion. Indonesia remains the largest stock market in the region, valued at around US$749 billion, a position it has held predominantly since late 2021.

This shift in market standings was unexpected. Investors had anticipated that the easing of pandemic restrictions in late 2022 would boost Thailand’s economy through a resurgence in tourism. However, China’s stringent Covid-19 policies and a weak macroeconomic environment led to fewer tourists and reduced spending, undermining these expectations.

According to the report political instability, including concerns about the potential removal of Prime Minister Srettha Thavisin and delays in a significant US$14-billion cash handout, is further dampening market sentiment. In response, Thailand’s stock exchange has introduced new initiatives aimed at preventing market abuses and enhancing efficiency to restore investor confidence.

Global traders remain cautious, as overseas investors have sold off nearly US$3.3 billion worth of stocks this year, mirroring last year’s significant decline. Despite this, Malaysia stands out in Southeast Asia, attracting US$85 million in foreign investment year-to-date, making it the only country in the region to experience inflows.

In contrast, Singapore has seen minimal changes in foreign investment, with sales reduced to a small fraction compared to last year. Malaysia’s attractiveness is underscored by its relatively stronger performance compared to Thailand, where the SET Index’s price-to-earnings ratio has recently fallen below that of the FTSE Bursa Malaysia KLCI Index for the first time in nearly four years.

Fund manager Sat Duhra of Janus Henderson Group Plc told Bloomberg that Thailand’s weak baht and fiscal discipline issues under the new government’s handouts make other Asian markets more appealing. As a result, Malaysian stocks are currently trading at a lower valuation, with the SET Index priced at about 13 times earnings compared to 14.1 times for the FTSE Bursa Malaysia KLCI Index.

Bloomberg’s market capitalisation data, focusing only on actively traded primary securities, often show lower values than other sources and exclude ETFs and ADRs. Recent data suggest that Singapore’s market cap has now surpassed Thailand’s, partly due to gains in banking stocks and an approximately 6 per cent rise in the Straits Times Index this year.

In contrast, Malaysia’s market has surged by 11 per cent this year, driven by the AI boom, as the country benefits from its role in AI data centres and chip supply chains.