Thailand’s Tax Breaks Fuel Stock Market Surge
Thailand’s newly approved Thai ESG Extra (ESGX) fund offers a potential lifeline to the nation’s stock market, aiming to mitigate downside risks and potentially push the Stock Exchange of Thailand (SET) index back towards the 1,250–1,300-point range. This is particularly relevant given lingering anxieties surrounding economic growth, according to Kavee Chukitkasem, chief of portfolio advisory at Pi Securities.
The cabinet approved the ESGX fund on Tuesday, creating a mechanism for investors to transfer assets from existing long-term equity funds (LTFs) and benefit from new tax-deductible investment opportunities. Investors switching to the ESGX fund can claim deductions on investments up to 300,000 baht. This new incentive allows for a total personal income tax deduction of up to 500,000 baht—300,000 baht immediately, with the remaining 200,000 baht spread over four years in 50,000 baht annual increments. Crucially, this transfer is limited to May and June of this year, requiring investors to commit their entire LTF holdings to the ESGX fund. New purchases of ESGX units during these two months also qualify for the 300,000 baht tax deduction. This initiative targets an estimated 180 billion baht in outstanding LTF investments.
Mr. Chukitkasem welcomed the ESGX fund, suggesting it could temporarily curb LTF redemptions and inject much-needed capital into the stock market. However, he acknowledged that the ESGX fund’s tax benefits are less generous than those previously offered for LTFs (up to 500,000 baht), alongside an additional 500,000 baht for retirement mutual funds (RMFs) and provident funds.
While not universally appealing, Mr. Chukitkasem highlighted its attractiveness for high-income earners (monthly salaries between 200,000 and 300,000 baht) who can maximize the tax benefits. For investors in other income brackets, the Super Savings Fund (SSF), with its international diversification options, remains a viable alternative, albeit with a less liquid 10-year holding period. Investors with matured RMF investments (age 55 or older) can also consider reallocating funds to the ESGX fund.
The ESGX fund, alongside the state-backed Vayupak 1 Fund—another instrument focused on Thai stocks—is anticipated to play a stabilizing role in the market. Mr. Chukitkasem forecasts the SET index will likely find support at 1,100 points and resistance at 1,300 points. While previous resistance was observed at 1,280 points, a substantial rally beyond this level is considered unlikely given persistent economic concerns. He explains that if the economic situation remains sluggish, the support funds are unlikely to engage in aggressive stock purchases. Nevertheless, the new tax incentives are expected to provide a buffer, making a drop below the 1,000-point mark improbable.
The SET index’s trajectory remains intertwined with global and domestic economic conditions. Foreign investors remain hesitant due to uncertainty surrounding Thai policies, the perceived instability of the coalition government, and the slowdown in global and Thai economic growth. These factors, Mr. Chukitkasem concludes, contribute to downward pressure on Thai equities. The ESGX fund, therefore, emerges as a potential mitigating factor in a complex and uncertain market landscape.
