Stock market outlook: “No major wows or shocks from Budget 2023”

WHILE Budget 2023 was touted to be an “election budget”, we felt it was relatively muted from a market perspective with no major wows or shocks. But really, this isn’t a bad thing, considering the previous budget which spooked the market with prosperity tax and stock stamp duty hike.

The personal income tax restructuring – 2% reduction for income brackets RM50,000-RM100,000 and 0.5% increase for RM250,000-RM400,000 – will result in RM250-RM1,000 rise in annual disposable income for taxpayers (those above the RM50,000 income bracket) or RM800 mil in totality.

This would more than offset the marginal reduction in the Bantuan Keluarga Malaysia (BKM) cash handouts at RM7.8 bil for 2023 (2022: RM8.2 bil).

Conspicuously silent was the absence of any mention on the goods and services tax (GST) or targeted fuel subsidies – understandable though as GE15 is nigh. Still, taking cue from the Finance Ministry’s (MOF) consumer price index (CPI) projection of 2.8%-3.3% in 2023, this suggests there could be plans for a modest increase in pump price.

Sector implication

Higher disposable income (via personal income tax restructuring but partly offset by lower BKM) is positive for the consumer sector.

Construction should benefit from the 13.5% development expenditure increase (ex-1MDB bond repayment), reaffirmation of the Mass Rapid Transit Line 3 (MRT3) and also noting that flood mitigation projects (RM15 bil) could be the next thing to set the eyeball on.

The stamp duty discount increase to 75% (from 50% under i-Miliki) is positive for property developers.

The aviation and real estate investment trust (REIT) components (hotels and prime malls), hospitals and Genting Malaysia Bhd should benefit from the slew of tourism initiatives.

Absence of any sin-excise/tax hike should offer a sigh of relief for casino, number forecast operators (NFOs), the tobacco industry and brewers – the latter two should benefit from continued efforts to clamp down on illicit products.

A multi-tiered levy for foreign labour will be implemented whereby those with high number of foreign workers (eg plantation and construction) will be charged with higher levy, of which the additional levy will be channelled to support employers to fund automation.

On the environment, social and governance (ESG) front, there is a noticeable increase in the emphasis on sustainability spanning across building climate resilience to green investment, carbon neutrality and preserving biodiversity.

No change to FBM KLCI target

We maintain our FBM KLCI earnings growth forecast of -8.2%/+6.9% for CY2022/2023. Our end-2022 FBM KLCI target is unchanged at 1,540 based on 15.5 times price-to-earnings ratio (PE) pegged to mid-CY2023 earnings per share (EPS).

Granted, PE valuations are rather flimsy given the cloudy external climate. However we take some solace that (i) PB is at -2SD (standard deviation) which has been a decent gauge of bottomed valuations; and (ii) foreign shareholding is near bottom levels (September 2022: 20.6%).

Expanding further on this, we would tactically bottom nibble on current weakness to ride on the traditional December window dressing effect which had a 92% positivity rate post-GFC (Global Financial Crisis). – Oct 8, 2022


Jeremy Goh is the head of Hong Leong Investment Bank (HLIB) Research. This opinion is co-authored by the research house’s chief economist Felicia Ling.

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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