Budget 2013 was tailored to appease the people, but constraints meant that measures were limited and hence unlikely to have much impact on the Malaysian stockmarket. We have raised our end-2012 target for the FBMKLCI from 1604 to 1616, but remain Neutral on Malaysia.
Highlights of the 2013 Budget
1. Malaysia’s fiscal policy as implied in the 2013 Budget and Economic Report is not expected to have much impact on the Malaysian stockmarket, as the Government is projected to marginally reduce its fiscal boost to the economy in 2013.
2. As this is the last Budget before the next 13th General Elections (GE13), it was tailored to appease the people, but constrained by having to keep the budget deficit down and not rocking the boat.
3. RM3bn is being dished out under BR1M 2.0 to low-income earners, real property gains tax (RPGT) was raised, and the personal income tax rate was reduced by 1 percentage point for lower income brackets.
Malaysia Economic Report 2013
1. GDP growth forecast of 4.5-5% in 2012 (implying slower 2H2012) and 4.5-5.5% in 2013, compared to our forecasts of 4.6% in 2012 and5.2% in 2013.
2. Growth to be driven by the Construction sector in 2012 (+15.5%) and 2013 (+11.2%).
3. Federal Government operating and development expenditure to be marginally lower in 2013, budget deficit/GDP ratio to drop from 4.5% in 2012 to 4.0% in 2013, and committed to keep its debt/GDP ratio below 55%.
Sector impact and outlook
1. Although development expenditure lower in 2013, major infrastructure projects are financed ‘off-balance sheet’, which explains why Construction still driving GDP growth in 2013 which is positive for Construction and Building Materials.
2. Measures to improve housing affordability for the rakyat mildly negative for the Property sector, but no major impact since RPGT increase was muted.
Review of our 3Q2012 market outlook and strategy
1. We expected the FBMKLCI to trade around 1604 (between 1578-1630) until Parliament is dissolved for Malaysia’s General Elections (GE13). During 3Q2012, the FBMKLCI traded between 1600-1654 which was 1.5% higher than our expected range, and ended the 3Q2012 at 1637 due to global liquidity.
2. Our market strategy had mixed results. We were Neutral on all sectors except for Overweight on Construction and Building Materials. Banks performed in line with the FBMKLCI, but Construction, Plantations, Property underperformed and Telecommunications outperformed.
Our 4Q2012 market outlook and strategy
Our view now is that the FBMKLCI will trade around 1625 (± 1.5% with upside at 1650 and downside at 1600) until Parliament is dissolved for GE13, which could then trigger a correction to 1506 on the FBMKLCI. We are correspondingly raising our 2012 year-end target for the FBMKLCI to 1616 from 1604. Unfortunately, the timing of GE13 is anybody’s guess, except that Parliament has to be dissolved by April 2013.