Analysts at J.P. Morgan downgraded Thailand's equities rating on Monday, citing the slow pace of recovery in the tourism industry due to rising inflation and a surge in COVID-19 cases in China.
JPM said the tourism industry in Southeast Asia's second-largest economy faces several headwinds, including soaring inflation globally along with weakening consumer sentiment and foreign exchange fluctuations, as brokerage cuts its rating to "neutral" from "overweight".
Thailand, one of the world's popular tourism destinations before the pandemic, was among the first nations in Asia to reopen its borders to vaccinated visitors last year with limited quarantine norms, hailed at the time as a model for re-opening.
Travel and tourism in Southeast Asia - known for its white sand beaches, historical architecture and warm climate - contributed $380.6 billion to the region's GDP in 2019, or 11.8% of the total, according to World Travel and Tourism Council.
Thailand's tourism industry contributed to 12% of the country's GDP before the pandemic.
More than a quarter of the 40 million tourists who had visited Thailand in 2019 were Chinese. This year, the country expects between 5 million and 10 million international arrivals from places such as Malaysia and other Southeast Asian neighbours.
"China's firm zero-Covid policy and recent capital outflows will likely delay the return of Chinese outbound tourists," JPM said.
Forward bookings for 2022 show Thailand is expected to reach 25% of pre-pandemic levels, behind levels of 72% and 65% for Singapore and the Philippines, respectively.
Thailand's economic activity improved in April following easing of COVID restrictions, but remained under pressure from rising living costs after a slowdown the previous month, its central bank said on Friday. JPM also downgraded Thailand's industrial sector to "neutral" from "overweight".
(Reporting by Aniruddha Ghosh in Bengaluru)