ESG Index outperforms market despite ThaiESGX slowdown, long-term outlook remains positive

Investing in Thailand’s stock market has not been ideal recently as uncertainties remain high, with various factors to consider before making investment decisions.

These include both pressures and challenges, leading to a stagnant or declining Thai stock index in some instances, but this also presents long-term investment opportunities.

One of the Thai stock indices, the SETESG index, saw a 14.98% decline since the beginning of the year (as of May 27, 2025), but it still performed better than the SET Index, which dropped by 16.91%, and the SET50, which dropped by 16.28%. Over the past month, however, the SETESG index gained 2.3%, closely matching the SET Index’s 2.2% rise, showing that it remains competitive.

This relatively strong performance can be attributed to the inflow of funds into ThaiESGX, which is still limited. It is estimated that the fund may not reach its target of 10 billion baht, with most investments shifting from Long-Term Equity Funds (LTFs).Piriyaphon Kongwanich, Director of Fundamental Analysis at Bualuang Securities, explained that both stock indices are facing short-term pressures from the U.S. trade war. Concerns over U.S. debt have led to higher bond yields, which put pressure on risk assets, causing the stock market to struggle. However, he believed the market will recover towards the end of Q3 and Q4 of 2025.

Investing in ESG (Environmental, Social, Governance) stocks has long-term benefits, as companies within the SETESG index tend to have more sustainable growth and attract investors who value environmental, social, and governance factors. These stocks mix high-quality companies with strong profits and those that are part of the global economy, such as ADVANC, GULF, KTB, OSP, and SCC.Jitipol Puksamatanan, Assistant Managing Director and Head of Global Investment Strategy at Finansia Cyrus Securities Plc, added that the SETESG index’s smaller drop compared to the SET index suggests that ESG stocks have the potential to outperform the broader market, especially in long-term businesses with lower risks.

Although the impact of the ThaiESGX fund may be limited, the government expects new inflows of around 20 billion baht. The shift of funds from LTF to ESG-focused investments will help boost the proportion of green stocks in the SETESG index, including sectors such as banks, retail, and real estate, which are expected to see increased weightings compared to the SET100 index.

However, Ratasak Piriyanont, Senior Director at Kasikorn Securities, warned that the earnings outlook for these sectors in the second half of 2025 is likely to slow down. Banks may face negative effects from declining loan growth and rising credit costs, particularly for SMEs and mortgages. The retail sector is expected to see slowing consumption in the second half, with same-store sales growth (SSSG) in Q2 2025 continuing to slow from Q1. The real estate sector faces weak demand for housing, with banks tightening lending standards to reduce NPLs.

On the other hand, the Thai ESGX fund can invest up to 20% of its portfolio in alternative assets. Stocks expected to benefit from the Thai ESGX fund include PR9, OSP, GULF, CK, and BCPG, which are projected to show strong earnings growth in the second half of 2025.

(2025/06/04-00:00)