Market neutral, says Midf Research

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KUALA LUMPUR (Oct 10): The freshly announced Budget 2015 by Prime Minister Datuk Seri Najib Razak is deemed market neutral, according to Midf Research.

In a report issued tonight, the research firm said there are no new key broad measures in the budget other than the reiteration of those which have already been announced in last year’s budget, namely the implementation of GST starting second quarter of next year, the reduction in personal income tax rates, and a 1 percentage point (ppt) cut in corporate tax rate to 24% beginning 2016.

According to Midf, the FBM KLCI is heavily weighted by four sectors - banking, telecommunication, plantation, and oil and gas. Together, these sectors represent about 75% of the benchmark index’s total weighting but there was very little in the budget that would excite investors in these four sectors.

“We do not expect Budget 2015 to bring much excitement to FBM KLCI in [the] coming week,” it added.

Midf described the Budget as a continuation of the government’s strive to balance between the fiscal consolidation stance and the well-being of the rakyat.

“With fiscal consolidation pace continuing to be moderate, the size of debt is also unlikely to be pared down much, and again the need to ensure the debt ratio to GDP hinges on faster economic growth expectation,” it explained.

The research firm reiterated its FBM KLCI 2015 year-end target at 1,970 points, which is equivalent to 16.4 times of 2015 earnings or +0.75SD [standard deviation] above its long-term average (from 2006-present).

“We retain our FBM KLCI 2014 year-end target at 1,900 points in spite of what we view as a short-term cyclical pullback in the red-hot US equity market,” it said.