Key Highlights:

• Thailand's Q1 2025 economy grew 3.1% (YoY), exceeding the 2.9% forecast, driven by accelerated exports and strong government investment recovery. However, the overall 2025 economy faces risks from external and internal factors. Thailand's 2025 GDP is expected to grow around 1.4%.
• Thai exports in May 2025 surged 18.4% (YoY), bringing 5-month export growth to approximately 14.9%. However, these high export figures may not reflect Thailand's true economic strength due to pressure from cheaper consumer goods from China, declining agricultural prices from increased production, and falling energy prices following global crude oil downtrends. Thailand's general inflation rate for 2025 is expected to be around 0.4%.
• Tourism sector's 38 million visitor target may be revised down to 35 million or lower due to structural factors and changing travel behavior, particularly from Chinese tourists. This directly impacts domestic consumption, especially service sectors like restaurants, hotels, and retail.
• Domestic political uncertainty remains a major concern, potentially delaying the 2025/2026 budget. This could stall government investment (20% of total investment, ~4.7% of GDP). If the budget is delayed 6 months, investment spending is expected to drop 30-40% from normal levels, or 50-60% if political unrest occurs, impacting GDP by -0.2% to -0.4%. Effects will be most evident in Q4 2025 to Q1 2026. While direct capital market impact may be limited, indirect effects from reduced confidence will pressure private consumption and investment, further weakening the slowing economy.

Investment Strategy and Recommendations

• In a slowing economic growth environment, Fixed income investments are preferable (bonds outperform stocks during economic downturns or mild slowdowns).
• Bonds also offer lower volatility and steady interest income. We recommend gradual investment in LHSITHAIESG fund, which focuses on ESG bonds. The fund currently concentrates on ESG Green Treasury Bonds.
• Portfolio has an average bond duration of 9.5 years and yields 1.99% for the entire portfolio. Fund managers are positive on duration given the Bank of Thailand's likelihood of continued interest rate cuts. BOT rate cuts would provide upside beyond cash flows from government bonds, with potential capital gains benefits. This serves as a good alternative amid volatile stock markets. We recommend long-term investment in this fund, which has shown outstanding positive returns across multiple timeframes.
• We recommend both new purchases and DCA (Dollar Cost Averaging) additional purchases for stable long-term interest income opportunities of LHSITHAIESG fund.