Here’s What Market Analysts Are Saying About Malaysia’s Budget

The Malaysian budget’s focus on fiscal discipline will boost the government’s credibility in carrying out fiscal reforms, though impact on equities will likely be limited.

(Bloomberg) — The Malaysian budget’s focus on fiscal discipline will boost the government’s credibility in carrying out fiscal reforms, though impact on equities will likely be limited.

Most brokers lauded Prime Minister Anwar Ibrahim’s move to slash spending, reduce debt and employ additional levies, but kept their 2023 targets for the benchmark FTSE Bursa Malaysia KLCI Index unchanged in the face of increased taxes. The gauge fell as much as 0.5% Monday, amid broader weakness in the region.

Restoring fiscal health will be critical for Malaysia to preserve its top credit rating in emerging Southeast Asia and maintain investors’ trust at a time when increasing US interest rates have pushed them away from emerging-market assets. Foreign funds have sold about $682 million of local stocks this year and withdrawn $114.3 million from the nation’s bonds so far this month, according to data compiled by Bloomberg.

Still, analysts have touted the construction and property industries as beneficiaries of the budget given the higher development allocation and new projects planned. Shares related to the sectors were mostly lower Monday, while poultry stocks rose after authorities lifted price controls on chicken and eggs.

READ: The Winners and Losers From Malaysia’s 2024 Spending Plan

Here’s a selection of comments from market participants on the budget:

Citigroup’s analysts including Megat Fais

Together with the higher service tax, the impact to consumer is more mixed vs. last year, despite higher cash handouts, one-off cash incentives to gov servants and additional income tax breaks. Other relative winners include construction, tech, tobacco/breweries.

With less noise on the political front, earnings delivery is key going forward.

UOB Kay Hian’s analysts including Vincent Khoo

The budget is “market-neutral,” but signals the unfolding of gradual fiscal reforms. 

“While fiscal consolidation points to slower domestic consumption growth, the country’s fiscal discipline supports our view for a stronger ringgit in 2024.”

Maybank Investment Bank analysts Suhaimi Ilias

The budget “sustains fiscal consolidation and aligns allocations with recent policies, benefiting sectors such as construction, electronics, chemicals, electronic vehicles and tourism.”

The firm maintains 2023 target for the FTSE Bursa Malaysia Index at 1,520.

Kenaga Investment Bank’s analysts

“Budget 2024 turns out to be a less bitter pill for most” as it raises taxes on one hand, but doesn’t explicitly mention anything on subsidy rationalization for petroleum, and progressive wages for workers.

The firm maintains end-2023 target for Malaysia equity benchmark at 1,520.

AMBank Research’s analysts

The budget “supports the 12th Malaysian Plan in securing a more sustainable future with a carefully crafted retargeting mechanism for subsidies which helps to reduce 2024 fiscal deficit.”

Affin Hwang Investment Bank’s analysts including Alan Tan 

The budget “will neither excite nor disappoint” as consumers will feel the brunt from some taxes and higher cash assistance will be offered to the needy.

The bold move of rationalizing fuel subsidy will boost government’s credibility in carrying out reforms.

The firm maintains neutral stance on Malaysia equities, and keeps 2023 target for Malaysia equity gauge unchanged at 1,438.

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