Expectations rise for Window Dressing as funds adjust portfolios to new index criteria

Analysts forecast that the likelihood of Window Dressing will be high in the final stretch of the year, but it is expected to take the form of portfolio adjustments by funds to align with the new SET50/SET100 index and new ESG criteria, rather than injecting fresh capital into the market.

These portfolio adjustments are expected to lead to sector rotation, with some stocks facing sell-offs, such as DELTA, which failed to meet the new ESG standards, rather than pushing the overall index higher.

The Window Dressing effect this year is expected to be weaker than in previous years due to reduced activity in tax-saving funds, and the sluggish stock market conditions have led investors to be more cautious. Foreign investment support remains limited, with only short-term speculative investments coming into play, driven by the strengthening of the baht. Investors are still waiting for clarity on the political and economic situation.

The Thai stock market in the final stretch of the year is once again under close scrutiny, as many analysts predict a high likelihood of Window Dressing, or the portfolio adjustments of funds, due to significant changes in market criteria. This includes the selection of stocks for the SET50/SET100 index and new ESG criteria, which will come into effect on January 1, 2026. These changes could also affect foreign investments, which may remain limited.

Korn Hathaisattha, chief investment strategist and economist at CGS-CIMB Securities (Thailand), shared in an interview with Krungthep Turakij that the Thai stock market has a high chance of experiencing Window Dressing in the remaining months of the year, potentially occurring earlier than expected.

A major factor driving the portfolio adjustments comes from changes in key market criteria, including the latest round of SET50/SET100 index rebalancing and the implementation of new SETESG criteria based on FTSE standards. As a result, passive funds will need to adjust their portfolios to align with the new guidelines.

However, this Window Dressing event is not expected to push Thai stocks higher but will instead reflect in sector rotations, as money is merely being shifted from one group of stocks to another. The total amount of investment will remain unchanged.

"The movement of individual stock prices is expected to become more apparent, such as DELTA, which has seen a sharp decline due to not receiving an ESG rating. This drop is driven by passive funds selling off in line with the new criteria," Korn said.

Foreign investment at this time is still mainly directed toward the bond market rather than equities, limiting the support from foreign fund flows. Therefore, if investors are expecting large-scale Window Dressing inflows, they may not materialize as expected.

Meanwhile, the possibility of a "Santa Rally" at the year-end still exists, but the likelihood remains low. The index is expected to stay around 1,340 points.

Paradorn Tiaronpramote, Director of Research at Asia Plus Securities, said that while Window Dressing is still expected, this year’s momentum appears weaker than in previous years. He pointed out that the purchase of THAIESG funds this year has been relatively quiet. After the launch of THAIESGX, trading has not been as active, and institutional funds or investors have already sold a net 7.5 billion baht this month.

Although fund buying has been subdued, there is still hope that Window Dressing could be replaced by other factors, such as the upcoming elections or reduced pressure from the Thai-Cambodian border situation. These changes might encourage other investors to take over the role of driving Window Dressing.

Foreign investors are expected to play a part in this replacement, as the strong baht has prompted them to buy Thai stocks. Foreign investors are particularly drawn to changes and political developments, which could lead to an increase in foreign capital inflows.

In December 2025, foreign investors have already purchased a net 4.1 billion baht of Thai stocks, marking the second month of net buying this year. The first month of net buying was July 2025, with a net purchase of 16 billion baht. Although foreign net purchases have occurred for two consecutive months, the overall foreign investment for the year remains a net outflow of 108 billion baht.

Apichart Phubunjerdkul, Senior Director of Strategic Analysis at TISCO Securities, stated that statistics show the probability of Window Dressing in Q4 is higher than in other quarters, at around 69%, with an average positive return of 0.3%. The main supporting factor is the capital inflow from tax-saving funds, which typically increases at the end of the year, particularly after Christmas, when investors are aware of their bonuses and start planning for taxes.

However, this year, the Window Dressing effect is expected to be weaker than in previous years, as some of the investment funds were pulled out earlier, especially after the sale of the THAIESGX fund in May-June. Additionally, the ongoing sluggish stock market in Thailand for the third consecutive year has made investors cautious, and some remain hesitant to reinvest after past losses from LTF funds.

As for the direction of foreign capital, although there have been inflows at the beginning of December, these are mostly short-term speculative investments driven by a stronger baht. Foreign capital is waiting for more clarity on political and economic policies before making serious investment decisions.