Cabinet to approve Thai ESG fund boosting SET by 50 billion baht

The Thai Cabinet is set to approve the new Thai ESG Fund tomorrow, with analysts anticipating that the revamped conditions of this environmental, social, and governance (ESG) centric fund will enhance trading on the Stock Exchange of Thailand (SET) by 40-50 billion baht annually.

The fund’s revised structure includes a reduced holding period of five years, down from the original eight years, and bears similarities to the now-defunct tax-saving long-term equity fund (LTF). According to Asia Plus Securities (ASPS), this adjustment is likely to attract investments into Thai stocks, particularly those offering cheap valuations and sustainable growth.

Investors will now be able to deduct up to 300,000 baht from their taxes, a significant increase from the previous 100,000-baht limit under the original Thai ESG fund.

The Ministry of Finance plans to present the new Thai ESG fund to the Cabinet today, July 23. ASPS noted that this development could prompt institutional investors to shift from their current net selling of 556 million baht month-to-date to net buying, thereby giving the SET Index a short-term boost, said the brokerage.

“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%.”

ASPS also highlighted that local institutions are expected to prefer stocks over bonds. As of May, there were 32 Thai ESG funds with total assets under management (AUM) of 6.8 billion baht, of which only one was a bond fund. The ongoing default issues with several bonds reinforce this trend.

ESG stocks

“Institutions are more likely to launch new equity funds investing in ESG stocks rather than bonds, boosting fund inflows into stocks.”

SET ESG stocks boasting 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 benefit from institutional buying and Thai ESG fund inflows moving forward.

Currently, the nine most commonly held stocks by Thai ESG funds include 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 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 gearing up to enhance its ESG ratings methodology to align with global standards, marking a significant step in promoting responsible business practices and sustainable growth among listed firms.

Since last year, the SET has been collaborating with a leading global assessor to refine its ESG rating methodology to match 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.”

This new approach aims to ensure that ESG ratings are more robust and reflective of the firms’ actual practices, thereby encouraging more companies to adopt sustainable and responsible business models, reported Bangkok Post.