Malaysia’s revised budget for this year may provide support for its assets, as the government’s plan for increased infrastructure spending is seen as a positive, while new tax proposals are less onerous than expected.
(Bloomberg) — Malaysia’s revised budget for this year may provide support for its assets, as the government’s plan for increased infrastructure spending is seen as a positive, while new tax proposals are less onerous than expected.
Prime Minister Anwar Ibrahim will set aside 388.1 billion ringgit ($87.5 billion) this year, of which 97 billion ringgit will be for development expenditure — that’s 2 billion ringgit more than what the previous government had pledged for 2023. Meanwhile, he also plans to tax luxury goods and vape products.
The tax measures will help narrow the fiscal deficit to 5% of gross domestic product this year.
Malaysian assets have underperformed this year as global investors rotate into China after President Xi Jinping dismantled his Covid Zero strategy. The FTSE Bursa Malaysia KLCI Index has fallen 2.6% this year, while the MSCI Asean Index remained unchanged. Meanwhile, the ringgit has fallen 1.1% against the US dollar.
Here’s a selection of comments from market participants on the budget:
Danny Wong, chief executive officer of Areca Capital Sdn.
“Given the current situations, both political and economic, it is a reasonably good budget” with positive initiatives including those for smaller firms and infrastructure.
“We welcome higher development expenditure and lower operating expenditure.”
Nirgunan Tiruchelvam, an analyst at Aletheia Capital Ltd.
“The budget’s moves to bolster infrastructure and social security will be welcomed by those who play the commodity related stocks. Malaysia palm oil, rubber and oil exports are the magic carpet that has kept the market afloat through the dark days of the Covid.”
Still, it is uncertain whether the revenue measures will be able to match the increase in spending.
Alan Tan, an analyst at Affin Hwang Investment Bank Bhd.
The record-high allocation in development expenditure “will play an important role in sustaining the country’s economic growth.”
The revised budget is likely to have a “neutral” impact on markets.
“While initial fears of new taxes, especially additional sin and gaming taxes, had roiled the market, this was only met by some proposals for a luxury goods tax, excise duty on vape products and a capital gains tax (from 2024), all of which we think, will unlikely rock sentiment in the near term.”
Maintains neutral allocation on Malaysia equities with a 2023 target of 1,457 for Malaysia’s equity benchmark.
Tan Teng Boo, chief executive officer and managing director of Capital Dynamics Sdn.
There might be “no impact” on equities from the budget as most measures are tweaks with marginal impact.
“US’ out of control inflation is of greater concern”
Alvin Tan, head of Asia FX strategy at RBC Capital Markets
The fiscal consolidation plan should keep “risks at bay for the ringgit and Malaysia bonds for this year at least”
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