Budget 2015 – Hardly any losers

By

The Federal Government is targeting to reduce its budget deficit further to 3.5% of GDP or RM37.1bn in 2014, from a deficit of 4.0% of GDP or RM39.3bn estimated for 2013, highlights RHB Research. The Federal Government is targeting to reduce its budget deficit further to 3.5% of GDP or RM37.1bn in 2014, from a deficit of 4.0% of GDP or RM39.3bn estimated for 2013, highlights RHB Research. The Federal Government is targeting to reduce its budget deficit further to 3.5% of GDP or RM37.1bn in 2014, from a deficit of 4.0% of GDP or RM39.3bn estimated for 2013, highlights RHB Research.

Budget 2015, themed “Strengthening Economic Resilience, Accelerating Transformation and Fulfilling Promises”, was, according to Prime Minister Dato’ Seri Najib Razak, “formulated with focus on the people’s economy… an economy that is rakyat-orientated covering priorities and interests of the rakyat such as cost of living, household income, education opportunities, employment and business, quality of life, skills training, entrepreneurship as well as security and safety.”

The 2015 Budget outlines seven main strategies:- Strengthening Economic Growth; Enhancing Fiscal Governance; Developing Human Capital and Entrepreneurship; Advancing Bumiputera Agenda; Upholding Role of Women; Developing National Youth Transformation Programme; and Prioritising Well-Being of the Rakyat.

Reception of the Budget has been generally positive across the board. As CIMB Research puts it, “there are hardly any losers in this Budget”.

Judging from post-Budget comments, most industry players feel that the Budget addresses the immediate need to lessen the burden of the people amid the rising cost of living. For starters, reduction in personal and corporate income tax is always welcomed. The Government also reiterated that the goods and services tax (GST) will be implemented from 1 April 2015.

Corporate Malaysia is heartened by the government’s commitment to fiscal reform.

The Federal Government is targeting to reduce its budget deficit further to 3.5% of GDP or RM37.1bn in 2014, from a deficit of 4.0% of GDP or RM39.3bn estimated for 2013, highlights RHB Research.

“We laud the Government’s strong display of commitment to fiscal reform… We think the 2014 Budget contained some hits and some missed opportunities, but is likely to be enough to keep at bay, for the time being, the threat of a sovereign downgrade,” says RHB Research. [Fitch Ratings had on 30 July downgraded Malaysia’s sovereign rating outlook to negative (from stable) on the back of an absence of fiscal reforms and steadily rising debt levels.]

“We are encouraged by the budget’s multi-pronged approach that focuses on fiscal discipline to strengthen the country’s public finances as well as achieve a more equitable and inclusive growth… Malaysia’s Budget 2015 shows a responsive government with measures and incentives directed at alleviating the pressures from the rising cost of living and ensuring that the economic momentum is sustained in 2015,” says CIMB Research.

The government also proposed other measures to address the weaknesses in the Malaysian economy. These include measures to control excessive speculation in the property sector such as raising the real property gain tax (RPGT) and abolishing Developer Interest Bearing schemes (DIBS).

RHB Research believes these measures will likely slow investment somewhat but the impact may be mitigated by the ongoing long-gestation projects that have kick-started under the Economic Transformation Programme (ETP) and in the various economic corridors. As such, it expects the growth of private investment “to be sustained at 14.5% in 2014, after a gain of 14.0% estimated for 2013.”

CIMB Research sees “hardly any losers from this budget” as the implementation of GST, though negative for many sectors, was announced last year and is well digested by the market. “Nearly all sectors will lose out from GST, with the likely major exceptions being the automotive and telecommunications sectors.”

RHB Research, on the other hand, highlights the property sector as “worst affected” by the Budget. Given the concerns over falling affordability levels and rising asset prices, the market has anticipated some curbs on the sector, it said.

“Even so, the combined punitive measures heaped on the sector were unexpected and could have a substantial negative impact on the Iskandar property market in particular. This may lead to a more drastic correction in the property market than desired and spill over to the banking sector, impacting loans growth, although the squeeze on bank earnings should be relatively mild,” it says.

Impact on stock market

CIMB Research believes Budget 2015 should be received positively by the market “given the absence of any negative policies and the announcement of significant spending for the education and construction sectors” but the impact is likely to be mild.

“The market’s direction in the short term appears to be again dictated by Wall Street’s volatility. While the budget did not include any negatives to give investors further excuse to sell, the positives were not overwhelming either.”

RHB Research concurs. It opines that while the country has pulled back from an imminent sovereign rating downgrade, there is no significant catalyst for a market re-rating. “As valuations of the FBM KLCI are no longer cheap, we believe the market will likely be stuck in a range-bound trading pattern.”

RHB Research maintains its end-2014 FBM KLCI target of 1,910 points, based on 15.5x one-year forward earnings, while CIMB keeps its targets of 1,950 points for end-2014 and 2,050 points for 2015, based on an unchanged 10% premium to the three-year moving average price-over-earnings.

“As the economy is on track to gain momentum going forward, we continue to favour high-growth sectors and stocks. While more value could be found in the mid- to smaller-cap stocks, investors should not ignore the bigger-cap stocks with sound fundamentals and accumulate these on weaknesses,” says RHB Research.

CIMB Research, meanwhile, continues to favour ETP winners, i.e. oil & gas, construction and property.

2015 Budget impact on sectors

2015 Budget impact on sectors

Leave a Comment