Political risk is starting to unnerve investors in thailand. south-east asias second-largest economy is in the grips of a youth protest movement that is growing both in size and audacity.

Students began staging regular protests the evocative thai word for demonstration is mob in july. their protests began with demands for prime minister prayuth chan-ochas government to resign, and in recent weeks have escalated to sweeping, and for conservative thais, subversive calls to limit the powers of king maha vajiralongkorn.

The students are planning at least one more massaction, a general strike, in october, historically a hot month of student unrest. and some investors are taking flight.

About $7.8bn flowed out of thai stocks in the year to the end of august, and another $2.3bn out of bonds. stocks have dropped more than 20 per cent this year. the thai baht seen as a haven currency before covid-19 because of the countrys generous foreign exchange reserves and cash-cow tourism sector is down 6 per cent against the dollar.

Eurasia group recently downgraded its outlook for thailand to negative because of what it called a worsening political divide and reform outlook. the political consultancy assigned a 35 per cent (comically precise, for anyone familiar with the volatility of thai politics) probability to the risk that the protests would spiral out of control and end in mr prayuths ousting.

Line chart of cumulative net flow of non-resident funds in equities ($bn),  showing that investors have been selling off thai stocks

If you look at thai sovereign debt risk, its not one of the highest, said peter mumford, the singapore-based analyst who wrote the piece. but in terms of the growth outlook, its horrendous.

Hearing the words thailand and risk in the same sentence will cause discomfort among veteran investors in a country that has seen past coups dtat and street violence. in 2008, protesters burnt down central world, the bangkok flagship mall of thailands biggest retailer. in 2010, rioting monarchist yellow shirts stormed bangkoks suvarnabhumi airport.

Ten years later, the student-led protests, which older red shirt populists have joined, have been entirely peaceful. but businesses face an increasingly turbulent outlook, and not only because of the protests.

The economy was already looking vulnerable because of the pandemic, which authorities have contained, but only thanks to a costly trade-off: the closing of the kingdoms borders to almost all the 40m-plus visitors who had been expected to visit this year. growth has been lagging behind most of the countrys neighbours and its population is ageing, raising the spectre of a middle income trap, with the population growing old before it gets rich.

Economic policymaking is in drift. the post of finance minister is empty for the second time in fewer than three months after technocrat predee daochai resigned this month, citing health reasons, just 26 days into the job. there is no news yet on a successor.

Looking at the thai economy, as a whole, its difficult to have a lot of confidence, especially compared to its neighbours, said brian tan, a regional economist at barclays in singapore.

Thailands industrial investors, notably the japanese manufacturers that have formed a bedrock of the economy since the 1980s, are showing no signs of going anywhere for now.

But the world economy has moved on beyond these legacy industries and thailand is failing to keep up.

The student protesters have, by design or not, pinpointed two of the factors holding the economy back in the 21st century: the inadequate education system and the censorship that enfolds the monarchy, the institution at the pinnacle of the political order.

A group of teenaged protesters who have given themselves the name bad students have rallied outside the education ministry in bangkok in opposition to the culture of hierarchy and abuse in thai schools, which perform poorly in international rankings of reading, maths and science test scores.

The prayuth government, meanwhile, is picking a fight it is unlikely to win with the us social media giants. digital minister buddhipongse punnakanta last week asked police to prosecute facebook, twitter, and googles youtube channel for failing to block posts critical of the monarchy. in thailand, the posts are illegal, but the silicon valley tech companies see them as free speech.

It is a heavy-handed approach on the part of thailand that is likely to further sour business sentiment. the prayuth government has talked in the past about fashioning a thailand 4.0 of digital industries and innovative start-ups that would supplant traditional industries, but this sounded far-fetched even before covid-19 and the protests. for now, most companies will be focused less on these promises for the future than the facts on the ground.