The cabinet is expected to endorse the new Thai ESG Fund on Tuesday, with analysts hoping the revised conditions of the environmental, social and governance (ESG) focused fund will boost trading on the Stock Exchange of Thailand (SET) by 40-50 billion baht a year.
With a shorter holding period of five years, rather than eight years in the original version, and with similarities to the now expired tax-saving long-term equity fund (LTF), the new Thai ESG fund is expected to attract fund inflows into Thai stocks, particularly those with cheap valuations and sustainable growth, said Asia Plus Securities (ASPS).
The new fund will increase the limit at which investors are able to deduct tax from their investment to 300,000 baht, from the 100,000-baht level that was permitted in the original Thai ESG fund.
The Ministry of Finance is expected to present the new Thai ESG fund to the cabinet on July 23. Consequently, institutional investors might return to net buying from their net selling of 556 million baht month-to-date, and boost the SET Index in the short term, ASPS said in a research note.
“The new Thai ESG fund is expected to boost the trading value by 40-50 billion baht. Every 10 billion baht increase in trading value boosts the SET index by 1-2%,” said the brokerage.
ASPS also noted that local institutions were expected to “buy stocks rather than bonds”. As of May, there were 32 Thai ESG funds with total assets under management (AUM) of 6.8 billion baht, only one of which was a bond fund (fixed income fund), while several bonds are having default problems now.
“Institutions are more likely to launch new equity funds investing in ESG stocks rather than bonds, boosting fund inflows into stocks,” ASPS said.
SET ESG stocks with AAA ESG ratings (an ESG score of more than 90 out of 100) and “excellent” CG Report ratings (a score of 5 out of 5) are projected to be driven by institutional buying and Thai ESG fund inflows from now on, it added.
Currently, the nine most commonly held stocks by Thai ESG funds are CP All (CPALL), Airports of Thailand (AOT), PTT, Delta Electronics (Thailand) (DELTA), GULF Energy Development (GULF), PTT Exploration and Production (PTTEP), CP Axtra (CPAXT), Central Pattana (CPN), and Bangkok Dusit Medical Services (BDMS).
Among the 29 stocks seen as most likely to attract investments from Thai ESG funds are Advanced Info Service (ADVANC), CP ALL, Kasikornbank (KBANK), Siam Cement (SCC), Central Retail Corporation (CRC), PTT Global Chemical (PTTGC), Tisco Financial Group (TISCO), BGrimm Power (BGRIM), CK Power (CKP), Sri Trang Agro Industry (STA), Amata Corporation (AMATA) and Thaicom (THCOM).
In a related development, the SET is planning to strengthen its ESG ratings methodology in line with global practices, marking a significant step forward in promoting responsible business practices and sustainable growth among listed firms.
Since 2022, the SET has been collaborating with a leading global assessor to refine its ESG rating methodology to align with international practices.
“The enhanced methodology, which is scheduled to be communicated to listed companies later this month, will place greater emphasis on publicly available information, reinforcing transparency and credibility in the assessment,” SET said in a statement.