How the Thailand-Cambodia Conflict Impacts the Financial Markets

After the second ceasefire on December 27, 2025, Thailand reported a border breach early in January 2026, which Cambodia claimed to be an accident. Historically, border conflicts induce volatility in the regional markets. The financial fallout of the territorial dispute between the two Asian nations has rippled across the forex and gold markets, as well as industrial supply chains. For traders, this means keeping a close eye on the turn of events and fine-tuning their trading strategies accordingly.

Markets Affected by the Conflict

Historically, geopolitical conflicts lower investor confidence. The ongoing dispute between Bangkok and Phnom Penh is no different.

Global HDD Supply Chain Disruption

The Thailand-Cambodia duo has worked great with the former as the manufacturing hub and the latter as the supporting processing facility for the hard disk drive (HDD) industry. The conflict now threatens global HDD supply chains.

HDDs are low-cost alternatives for storage, especially as backups, and are crucial to global data centre architectures. Thailand accounts for nearly 40% of global HDD production. Several large companies, such as Western Digital, Toshiba, Hitachi Vantara and Seagate, have their production capacities concentrated in the country. Border closures have significantly affected the HDD supply chain.

Manufacturers based in Thailand can no longer use the direct road network (for exports) through Cambodia and must resort to longer and more costly airtime and maritime routes. These routes are 30% more expensive and can stretch transit times by up to four days. Certain production units are even dependent on the Cambodian supply of raw materials. The border conflict can lead to raw material shortages if the supply chain disruption persists.

Manufacturing Standstill in the Land of Khmer

Cambodia imports 90% of its diesel and 80% of gasoline from Thailand. These are the foundation of Cambodia’s manufacturing capacity. With energy imports halted, Cambodia might be looking at a wider manufacturing shutdown and costlier transport. The Cambodian manufacturing sector accounts for about 27% of the country’s GDP. A shutdown weighs on FDI and investor sentiment, as it threatens GDP growth in the country.

In Cambodia, the impact is the most pronounced in the textile sector. The Cambodian textile industry relies on Thai raw materials for production and ports for shipment. The shutdown of textile mills in Cambodia impacts the supply to several global brands.

A decline in exports weighs on currency demand, which may lead to a decline in the valuation of the Cambodian riel.

Labour Market Instability and Inflationary Fears

Over 95% of Cambodians, or 0.9 million people, employed in Thailand, went back to their homeland in mid-2025 after the hostilities grew. This may affect 37.5% remittance inflows in Cambodia and cost the country’s GDP growth about 0.3 percentage points. The resulting surge in jobless numbers in Cambodia is driving borrowing demand in the country. As of January 2026, private credit in Cambodia is among the highest in Asia, at 110% of the country’s GDP. Non-performing loans stood at 7.9% in the country.

Early signs of inflation were evident in broad-based inflation numbers from June to September, which surged in Cambodia. The combined impact of a surge in jobless numbers and inflationary fears historically turns investors bearish.

Trading Amid the Thailand-Cambodia Border Tensions

Conflict situations usually result in increased market volatility. Traders need to continuously monitor geopolitical developments to adapt to changing market conditions and tweak their trading strategies accordingly.

Forex Volatility Creates Trading Opportunities

Experienced traders explore the opportunities created in the forex markets due to currency volatility. Since border tensions historically devalue currencies, opportunities can be found in the declining direction.

Derivative instruments, such as contracts for difference (CFDs), allow you to trade both rising and falling markets. CFDs are commonly used by scalpers and high-frequency traders who want to explore movements in both directions.

Gold for Safety

Geopolitical instability affects the local currency, due to which gold, the global safe haven, enjoys a risk premium. Traders tend to short currency and put their capital into safer assets, such as the yellow metal.

Decline in Consumption

Inflation and joblessness affect the domestic markets. These include the consumer discretionary and real estate sectors. Investors turn bearish and tend to short assets in these sectors. Energy-driven inflation weighs on the manufacturing sector, and traders prefer to bow out of their long positions.

Banking Sector

A high number of non-performing loans may impact confidence in the banking sector. This could then trigger broader financial instability in Cambodia. Traders tend to short banking stocks and indices when private credit surges, with non-proportional wage increases.

What To Watch

The trader must keep an eye on:

• Energy-related inflation.
• Real-time border status.
• Trade policies and tariffs.
• Import and export rerouting news.
• Non-performing loans data.

Risk Management

In a volatile market, risk management is crucial. More so, if you intend to use leverage. This is because leverage amplifies your exposure, and in turn potential profits and losses. Measures such as stop-loss and take profit become even more important in such situations. Sudden escalations at the border can send the markets into shock, which necessitates risk management.

To Sum Up

• The Thailand-Cambodia conflict impacts the global HDD markets, as shipments are rerouted via air and waterways due to supply chain disruptions.
• Cambodia faces a manufacturing crisis as energy and raw material imports are affected.
• The return of nearly a million workers from Thailand may weigh on Cambodia’s GDP growth.
• Bearish sentiment on Cambodian growth affects the riel’s market value. 
• Heightened risk and fear sentiment drive traders toward gold (safe haven) trading. 
• CFDs help explore opportunities in declining markets.
• Risk management with stop losses and take profits is non-negotiable against a geopolitically unstable backdrop.

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