The Thai ESG Extra (ESGX) fund endorsed by the cabinet this week could help limit the downside risks for the Stock Exchange of Thailand (SET) index, supporting a rebound to 1,250-1,300 points despite ongoing concerns about economic growth, says an analyst.
On Tuesday, the cabinet approved the Thai ESGX fund, which allows the transfer of investments from long-term equity funds (LTFs) and provides additional tax-deductible investment opportunities of up to 300,000 baht for purchasing Thai ESG units.
Those who switch are eligible for a personal income tax deduction of up to 500,000 baht, of which 300,000 baht is deductible in the current year, with the remaining 200,000 baht deductible in 50,000-baht annual increments from the second to the fifth year.
Investors who switch must transfer their entire LTF investment to Thai ESGX fund. Transfers must be completed between May and June this year.
A tax deduction is also available for Thai ESG purchases made in May and June for a maximum deduction of 300,000 baht.
The total outstanding LTF investment is estimated at 180 billion baht.
Kavee Chukitkasem, chief of portfolio advisory at Pi Securities, welcomed the launch of the Thai ESGX fund, saying the new fund can temporarily slow LTF redemptions and bring in new capital to the stock market over the next two months.
However, the tax benefits for the new ESG fund are less attractive than those for LTFs in the past. Investors could deduct up to 500,000 baht from LTF investments, and another 500,000 baht from retirement mutual funds (RMFs) and provident funds, for a total of 1 million baht.
The Thai ESGX fund is particularly attractive for high-income earners (those with monthly salaries of 200,000-300,000 baht), as they can maximise their tax deductions efficiently, said Mr Kavee.
For working class investors, the Super Savings Fund (SSF) remains an option as it allows international diversification. The downside is SSF investment requires a 10-year holding period, making it less popular.
Investors who have matured RMF investments (meaning the unitholders are age 55 or older) can reallocate funds into the Thai ESGX fund.
Together with the state-controlled Vayupak 1 Fund, which invests in Thai stocks, the Thai ESGX fund is expected to help stabilise the stock market, with Mr Kavee predicting the index will have support at 1,100 points and resistance at 1,300 points. Previous resistance at 1,280 points is unlikely to see a strong rally, as the market remains concerned about economic conditions, he said.
"If the economy remains weak, the support funds will not aggressively buy stocks. However, with the new tax incentives supporting the market, it is unlikely the SET index will fall below 1,000 points," said Mr Kavee.
The upside potential of the SET index depends on both global and Thai economic conditions, he said.
"Foreign investors remain concerned about uncertainty in Thai policies, the instability of the coalition government, and slowing global and Thai economic growth, leading to a downward trend in Thai equities," said Mr Kavee.