KUALA LUMPUR (Oct 24): AmBank Group Research said Budget 2019 is unlikely to contain short-term populist measures such as providing subsidies, grants and easy government-led financing, but should provide strong and clear policies that will help the economy ride out the current challenging time in the near future.
In a thematic report on Budget 2019 today, AmBank group chief economist and head of research Dr Anthony Dass said Budget 2019, which will be tabled in Parliament on Nov 2, will be important for a number of reasons.
“For a start, it will be the first budget presented by the new Pakatan Harapan (PH) government.
“Next, this budget will be a challenging one as the new PH government will need to fix huge fiscal finances and at the same time address the well-being of the rakyat,” he said.
Dass said given the local KLCI sentiments, he adopted a fairly cautious outlook as compared to the fixed income market.
He said underpinned by slower gross domestic product (GDP) growth, the 2019 corporate earnings are projected to grow by 5.7% from 2.4% in 2018.
“Besides, the rising fiscal deficit/GDP may open the door for foreign rating agencies to revisit our current ratings.
“Thus, we have lowered our 2018 and 2019 KLCI target to 1,790 (previously 1,900) and 1,890 (previously 2,020) based on 18.5x PE multiples,” he said.
Meanwhile, Dass said he foresees higher issuances of papers in 2019.
“Factoring the 'one-off' refund of RM35 billion for GST and income tax added with lower revenue growth following slower GDP outlook for 2019 and a reduction of total spending by 5% to 10%, we expect the supply of papers to hover between RM126.1 billion and RM144.6 billion next year based on a fiscal deficit/GDP between -3.7% and -4.9 in 2019.
“Thus, the fixed income market is poised to stay exciting,” he said.
Dass maintained his overnight policy rate outlook at 3.25% until 1H2019, with room for a 25-basis-point hike in 2H2019 as potential inflationary pressure is expected to emerge in 2H2019 driven by rising underlying inflation added with higher cost partly due to the weaker ringgit.
“Besides, the rate hike is also to address the narrowing interest rates differential with the US Fed fund rate which should reach zero in 2019 based on three rate hikes by the Fed in 2019 and another hike in 2020 bringing the normalised rate at 3.50%,” he said.