Budget 2020: Neutral to mildly positive on KLCI

Key winners are technology, property and auto sectors

PETALING JAYA: The recently unveiled Budget 2020 is expected to have neutral to mildly positive impact on the country’s equity market, say analysts.

According to CGS-CIMB Equities Research, which sees the Budget 2020 as being mildly positive for the stock market, the measures introduced would likely be neutral to FBM KLCI earnings but mildly positive for future corporate earnings.

The brokerage maintains its yearend FBM KLCI target at 1,583 points.

“Overall, we view Budget 2020 to be neutral for corporate earnings but mildly positive for the market as there are more sector winners than losers,” CGS-CIMB Research said in its report.

It noted the key winners in the budget were the technology (tax incentives), property (measures to boost property sales) and auto (fuel targeted subsidy programme and plans to reduce tolls) sectors.

The key losers, on the other hand, were the number-forecast-operator (NFO) players (due to less draw days) and manufacturing or services sectors (exposed to higher minimum wage in major cities).

The Budget 2020 was tabled last Friday. Among the measures introduced were a proposal to raise minimum wage to RM1,200 per month in major cities; lowering the number of special draw days for NFO players from 11 to eight times a year; and lowering of the threshold on high-rise property prices in urban areas for foreign ownership from Rm1mil to RM600,000 in 2020.

Meanwhile, Affin Hwang Capital Research, which viewed Budget 2020 as “just plain vanilla”, said the measures would likely be deemed unexciting by market participants, who were anticipating aggressive stimulative spending and tax cuts, especially amid increasing external headwinds.

“Instead, responsibility and prudence seem to be the order of the day with the focus tilted very much towards pump-priming consumption spending,” the brokerage said in its report.

“Given unattractive market valuations and lacking catalysts, we remain ‘neutral’ on the FBM KLCI, with an unchanged end-2019 target of 1,650 (based on 18 times 2019 estimated earnings),” it added.

Nevertheless, Affin Hwang noted that ample domestic liquidity and the FBM KLCI’S relative attractive dividend yields of 3.5% should provide downside support for the market. It said Budget 2020 would remain supportive of domestic demand, especially with numerous expenditure measures that would bolster private consumption and investment.

“Consumers are the prime beneficiary from Budget 2020, given a host of subsidies and benefits, reductions in toll rates and higher minimum wages. Addressing the property market overhang is also among the key priorities,” Affin

Hwang said.

“Among the negatives were a cut in special draw days for the NFO operators, while manufacturers across major cities will face higher minimum wages in 2020. The highest income earners will also fall into a higher tax bracket of 30% (from 28% currently),” it added.

According to MIDF Research, the mildly expansionary Budget 2020 amid the general slowdown in world’s economy was an attestation of the government’s commitment towards its long-term fiscal goal.

“Therefore, we do not expect it to provide a sufficiently strong nearterm impetus towards market sentiment which has been battered by external uncertainties, particularly the ongoing spats between the US and China,” it said.

Consequently, MIDF Research revised downward its FBM KLCI end-2019 target to 1,630 points from 1,680 previously.