Budget 2015 is market neutral

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Najib’s Budget could be a positive surprise for those who had expected more painful spending cuts. Photo by Bernama

KUALA LUMPUR: Budget 2015 is unlikely to bring much excitement to the Malaysian stock market this week, said analysts, as the budget provides no material surprises that may spur significant buying interest in the equity market.

MIDF Research said while Budget 2015, which was tabled by Prime Minister Datuk Seri Najib Razak last Friday, could be a positive surprise for the people who had expected more painful measures to cut spending, it may receive mixed views among businesses and investors as a stronger fiscal position is needed in the light of anticipated US Federal Reserves tightening and likely fund outflows.

The research firm is retaining its FBM KLCI 2014 year-end target at 1,900 points, with the expectation that the short-term market undertone will continue to be dictated by the prevailing vagaries on Wall Street.

The benchmark index closed 1.14% lower at 1,808.88 points last Friday in line with Asian equity markets as overall sentiment remained weak due to global growth concerns.

MIDF Research also voiced concern over the government’s move to increase the 1Malaysia People’s Aid (BR1M), which it said cannot continue indefinitely given the country’s fiscal constraint.

“It is rather odd to continue to pare down fuel subsidies to enhance fiscal prudence, but at the same time having cash handouts which is also a form of subsidy,” it said in its Budget 2015 analysis last Friday.

RHB Research Institute Sdn Bhd’s chief economist for Asean, Peck Boon Soon, said Budget 2015 was a “challenging” one for Najib as it involved balancing the reduction in subsidies and the rising costs of living in the country.

InterPacific Securities Sdn Bhd head of research Pong Teng Siew described the budget as “good”, saying it balanced rising costs with a wider scope of items not subject to the goods and services tax (GST) come April.

“It is good that the government is addressing the rising costs of living,” he told The Edge Financial Daily.

Standard Chartered Bank regional head of research Edward Lee said the budget has a good mix of further fiscal consolidation, enhancing the efficiency of subsidies and addressing the fall in development expenditure.

He added that the subsidy rationalisation and BR1M is not “counter-productive” as BR1M will moderate the negative impact of subsidy rationalisation on the needy.

“The overall fiscal system will become more efficient. Fiscal help will be more targeted and only goes to those who need it,” he said.

Lee is expecting the overnight policy rate to remain unchanged at 3.25% until the first half of 2015 as Bank Negara Malaysia had already taken into account the one-off impact of GST on inflation.

CIMB Investment Bank Bhd regional economist Julia Goh said Budget 2015 emphasised continuity as the country pushes forward with critical fiscal reform measures that were outlined in the previous budget.

The bank is forecasting exports to record a moderate expansion in view of a more positive external environment, albeit with weak commodity prices.

“While the fiscal reforms could potentially restrain growth in the near term, the plan to strengthen Malaysia’s public finances and build counter-cyclical buffers will help to improve the country’s resilience [in the event of] another global downturn,” she said in a note after the budget tabling.

“Domestic growth sectors include services, manufacturing and construction,” Goh added.

Areca Capital Sdn Bhd chief executive officer Danny Wong sees companies in the construction sector benefitting from the various infrastructure projects oulined in Budget 2015, while manufacturers will benefit from the capital allowance to increase automation.

Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng said as infrastructure projects are a focus in Budget 2015, construction companies and firms dealing with building materials and other related businesses could see an uptick in their share price.

“With the MRT (mass rapid transit) and other public transport projects, companies like MMC-Gamuda and local contractors will benefit,” he said, adding highway concessionaires will also benefit from the myriad of projects receiving allocations from the government.

However, he said there would not be a significant increase to the share value as most of the projects have already been announced.

“The benefits will be felt in the long term. Those who are able to hold on to the shares of these companies will benefit,” Ang added.

However, Affin Investment Bank Bhd vice-president and head of retail research Dr Nazri Khan believes that the infrastructure projects that were announced in Budget 2015 have already been priced in by the market.

From a tax perspective, KPMG Tax Services Sdn Bhd chief operating officer Nicholas Crist said Budget 2015 catered much to the upcoming GST.

“It [Budget 2015] is quite straight forward this time as we are less than six months away from the implementation of the GST,” said Crist.

However, he pointed out ambiguities in the budget with regards to GST-exempted items.

“Take reading materials for instance. It covered children’s colouring books, exercise and reference books, text books, dictionaries and religious books; but what about novels? The government will still need to issue further orders to specify this, as classification could be a big issue for GST,” Crist added.


This article first appeared in The Edge Financial Daily, on October 13, 2014.