MIDF notes the Budget 2023 tabled is providing record allocation for development expenditures. The total spending (including Covid-19 Fund) proposed at RM372.3b a 3.4% increase from 2021. In this regard, it is notable that the record amount allocated for gross development expenditure of RM95.0b (32.3%yoy) came in at the higher end of expectation. Meanwhile, the total revenue for next year is estimated at RM272.6b (-4.4%yoy). Thus, projecting a fiscal deficit (less RM0.7b loan recovery) of RM99.1b in 2023.
Nevertheless, the percentage of fiscal deficit to GDP is expected to decline from -5.8% this year to -5.5% in 2023 as the economy is (officially) forecasted to grow by between 4.0% to 5.0% next year. Likewise, the percentage of total government debt to GDP is expected to improve further next year from 61% in mid2022. Hence, the nation’s sovereign risk would not likely be compromised despite the further accumulation of fiscal debt. Overall, no material surprises in Budget 2023 at its headline levels.
Meanwhile, at the granular levels, we could see some excitement in the consumer sector due to the proposed 2% cut
in personal income tax (on taxable income of up to RM100,000) which is mainly targeted at the M40 group. Moreover, as
reflected by the rather outsized development expenditures, the construction sector may also benefit from the
implementation of various social infrastructures (such as roads, hospitals/clinics, schools).
External factors to continue hold sway over equity market sentiment. However, going forward, MIDF expects
external factors namely aggressive monetary tightening by major western central banks, the Russia-Ukraine war,
and China economic conditions, to continue to hold sway over equity market sentiment. In this regard, the research house foresees a situation whereby the local equity market valuation would remain below the normal historical range particularly due to the Budget 2021 consequence of US Fed extended aggressive tightening on the world’s financial liquidity. Additionally, equity valuation could also be impacted by higher risk attached to earnings forecasts corresponding to heightened economic uncertainty worldwide.
Moving towards the end of this year, MIDF expects the local equity market valuation to crawl higher from current levels
in line with the expectation of positive macro (as well as corporate earnings) growth in 2023. However, lingering fear over
further delays to the Fed pivot would exert downward pressure on equity valuation.
MIDF maintains its FBM KLCI end-2022 target at 1,520 points or PER22 of 14.8x. And maintains preliminary FBM KLCI end-2023 target at 1,700 points or PER23 of 14.8
