THE budget deficit estimate of 6% for 2020 from Budget 2021 is understandable given the significant headroom that the government needs for a highly expansionary policy, in view of the dire state of the economy domestically and globally, said Franklin Templeton GSC Asset Management Sdn Bhd CEO Hanifah Hashim.
“The target for a narrower fiscal deficit of 5.4% in 2021, which follows the path towards a lower average of 4.5% in 2021-2023, demonstrates commitment by the government to continue its track of fiscal consolidation and ensure Malaysia’s international rating do not deteriorate going forward,” she said.
Hanifah also believes that the bond market is going to be volatile with upward yields bias in 2021, with yield curves expected to rise slightly across the board in a steepening inclination.
“Based on the projected fiscal deficit target of 5.4% or RM84.8 bil, and government bonds maturity of RM73.7 bil in 2021, we projected total gross issuance to be around RM160 bil.”
“The supply of primary government bonds, government guaranteed bonds and corporate bonds are expected to be elevated as all segments are rushing to leverage the opportunity to raise funds in an attractive interest rate environment,” she added.
On the bond market front, Hanifah expects that the low-interest rate environment will continue to entice new and existing issuers, as the government has decided to proceed with existing transport infrastructure projects with an allocation of RM15 bil.
“We are expecting more construction companies to tap the bond market to seek funding, as well as some projects to be funded through government guaranteed issuance in 2021,” she opined.
On banking, the lack of automatic moratorium is positive for the sector as the targeted relief on loans is only given to low income borrowers which will have limited impact on the bottom line of banks.
The government also continues to encourage the issuance of SRI sukuk and bonds via income tax exemption for the next five years.
“We might see more primary corporate bonds issuance from the renewable energy space especially from the solar industry and we continue to be positive on this sector,” Hanifah added.
Meanwhile, Franklin Templeton Emerging Markets Equity senior managing director Sukumar Rajah believes that the incentives focused at improving productivity over the long-term such as the Industrialisation Digitalisation Transformation Scheme (valued at RM1 bil) will promote and expedite digitalisation and automation activities.
“We believe this will eventually drive an incremental positive effect on corporates in Malaysia over the long term. However, challenges such as further rise of COVID-19 cases, weaker than expected global economic recovery, lower for longer on oil prices and other geopolitical events may continue to weigh on the market direction in the near-term,” he said.
However, the overall impact of Budget 2021 is leaning towards mildly positive with some favourable outcomes for key sectors such as healthcare, consumer and construction due to the absence of windfall tax on the gloves sector, higher cash assistance and bigger allocation for healthcare and development expenditure.
Sukumar is in the view that the technology sector will continue to benefit through special incentive packages for high value-added investments which will encourage R&D, foreign investment and the creation of a more vibrant ecosystem (competitive in supply/value chain).
“The consumer sector is expected to benefit from measures that may help spur consumption, coming from financial aid and social assistance through Bantuan Prihatin Rakyat (BPR) and other measures such as lower statutory contributions and a targeted approach to personal income tax reduction,” he added. – Nov 16, 2020
