(Bloomberg) -- Malaysia’s record spending plan is set to drive further foreign interest in its assets as the government continues to build on its fiscal reforms, even if the immediate impact on equities is muted.
The government plans to cut the subsidy for the widely-used RON95 petrol from mid-2025, Prime Minister Anwar Ibrahim said in his budget presentation on Friday. The government is mulling a two-tier price system for the fuel so that the wealthiest 15% pay the market rate for it while the rest enjoy the current subsidized price, Economy Minister Rafizi Ramli said in a Bloomberg Television interview on Saturday.
The scope of the nation’s sales and services tax will also broaden to boost federal revenue, while wages will be hiked to help mitigate higher living costs.
Rebuilding fiscal health is key for Malaysia to retain emerging Southeast Asia’s highest credit score and lift investor confidence in the country’s growth prospects, supporting its local assets. Malaysia’s ringgit, the top performer across emerging markets this year, was little changed in early trading in Kuala Lumpur Monday. The nation’s benchmark stock index slipped 0.1%.
READ: The Winners and Losers From Malaysia’s 2025 Spending Plan
Here’s what analysts said about the budget:
Kenanga Research (analysts including Peter Kong)
There’s only a “small pool of clearer cut winners such as the consumer sector,” with a positive on discretionary names given clarity that the subsidy pinch will be confined to those at the loftier income brackets.
The government is sowing the seeds to continually pull in foreign direct investments through better incentives and higher value tech businesses, which should keep foreign interest high in the local market. The country is also easing into long-term ESG goals with the introduction of carbon tax by 2026.
Maybank Securities Pte (Winson Phoon)
“Budget 2025 reaffirms the government’s commitment to fiscal consolidation but may be insufficient to open up room for rating upside decisively. The revenue/GDP and debt affordability metrics need improvements and Malaysia’s public-debt ratio remains higher than majority of similarly-rated peers.”
Bond issuance in the final quarter of 2024 is likely to increase to fund a potential run-down in Treasury-bill issuance. However, the supply profile is “slightly favorable” in 2025 with expectation of a 19 billion ringgit ($4.4 billion) decline in gross issuance and 10 billion ringgit drop in net issuance. The $1 billion maturity in April 2025 is likely to be refinanced in foreign currency.
TA Securities
The budget measures are set to drive the economy and attract investments, contributing to better corporate earnings.
Maintains end-2024 FBMKLCI target of 1,690, which is based on a price-earnings ratio of 14.6 times versus its five-year average of 17.6.
Apex Securities
The budget is largely neutral as it seeks to alleviate concerns over the high cost of living, which is likely to lead to increased domestic spending in the future. The upward revision of economic growth projection may signal stronger corporate earnings growth. As a result, “the Malaysia stock market may sustain its recovery move” after rising about 13% this year.
For now, the market may react slightly negatively toward the introduction of a 2% tax on dividend income exceeding 100,000 ringgit in 2025. Still, the construction, consumer, tourism-related, health-care, gloves, property and technology sectors are likely beneficiaries from the budget.
CIMB Securities (analysts including Ivy Ng)
“We expect the equity market’s reaction to Budget 2025 to be neutral to slightly negative.”
The surprise introduction of a new tax on dividend income may reduce the appeal of dividend-yield stocks for individuals impacted by the tax.
“The proposal to mandate employers to make Employees Provident Fund contributions for foreign workers could raise costs and pose earnings risks for companies. We maintain our KLCI target of 1,732 points. Among our overweight sectors, construction and healthcare stand to benefit from the measures introduced in Budget 2025.”
Oversea-Chinese Banking Corp. (Lavanya Venkateswaran)
Bank Negara Malaysia will remain watchful of inflationary pressures which are expected to rise on the back of the minimum wage increase and other fiscal measures.
“While our baseline is for BNM to keep its policy rate unchanged at 3% in 2024 and 2025, we will continue to assess the risks around this baseline based on fiscal outcomes.”
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