KUALA LUMPUR (Oct 9): Budget 2023 is much within expectations with increased handouts and benefits for the B40 group, women and youths without neglecting measures to incentivise businesses and grow the economy. There was no mention of new taxes or unpopular measures that will affect market sentiment, which will be taken in a positive light. 

The strong domestic economy and high commodity prices this year have provided a solid base for the government to strike a balance between spending and fiscal consolidation next year without losing sight of economic growth measures, sustainability agenda and the rakyat’s well-being.

It is another expansionary budget with a lower fiscal deficit of 5.5% versus 5.8% in 2022, aimed at stimulating the domestic economy through greater private consumption and investment. We are "neutral" on this budget, but speculations about the dissolution of the Malaysian Parliament next week could intensify post-budget and increase selling pressure in equities. 

We reckon it is an opportunity to buy undervalued stocks in cyclical sectors like banks, construction, oil and gas, plantations, property and transportation, and defensive plays in consumer, media, telco and utilities. Blue chips, especially, are mostly cheap despite their solid fundamentals and should bounce back strongly once the political uncertainties disappear. 

Trading at a consensus calendar year 2023 (CY23) price-to-earnings ratio (PER) multiple of 12.3 times, the FBMKLCI is attractive versus comparable peers at 14 times. A possible rerating post 15th general election (GE15) should bring it closer to our year-end target of 1,590 based on CY23 PER of 14.4 times.