Budget 2023 was an expansive and electorate-friendly budget containing a record MYR372.3bn allocation, featuring generous measures to support the economically challenged segments of society. The absence of new taxes on the private sector was a positive surprise. As expected, the consumer sector is the main beneficiary. The absence of any proposal to kick-start subsidy reform is also within expectations. However, the dissolution of Parliament to hold the 15th general election would require a re-tabling of the budget and may render this proposal moot.
In terms of market strategy during this period, RHB investment gives its views on the sector and how investors should position themselves. Startiing with construction, Budget 2023 has allocated a jumbo development expenditure, but reading between the lines. the MYR95bn makes for good headlines, but new initiatives only amount to about MYR9bn. Stripping out the USD3bn for the redemption of 1MDB debt brings the net allocation to MYR81bn. However, with only 50.4% of the 2022 DE allocation spent as of mid-August, some spillovers into 2023 cannot be discounted. An emphasis on smaller projects will also tend to benefit the unlisted contractors. We maintain our NEUTRAL sector rating.
Consumer – always a reliable winner. The consumer sector was a predictable winner, with the budget proposals remaining supportive of continued consumer spending. There were handouts, subsidies, and even lower income tax rates. The tobacco and brewery sectors avoided new duties and will benefit from renewed government efforts to double down on enforcement against the illicit trade. We are still NEUTRAL on this sector.
Impact on other sectors. Overall, Budget 2023 was mildly negative for the auto sector, which was especially weighed down by the lack of clarity on the excise duty reform. The major incentive for the property sector announced by the Government is the stamp duty discount of up to 75% for houses priced at MYR500,000 to MYR1m, compared to the 50% discount previously. We make no changes to our sector weightings, post the Budget announcement.
Strategy. The expansive Budget for 2023 will help to support the ongoing recovery while adding to economic resiliency within the context of a slower growth environment going forward. RHB does not regard it as a game changer for market sentiment. Macroeconomic risks remain front and centre, with all eyes on inflation and the monetary policy trajectory, coupled with an evolving geopolitical environment that continues to give investors pause for thought on the prospects for risk assets. The market’s attempt to price in the outlook for 2023 continues to be stymied by the limited visibility, leaving investors on the fence. We advocate a core defensive stance.
Captive domestic investment funds should seek attractive entry points to nibble on weaknesses. RHB maintains OVERWEIGHT stance on banks, non-bank financial institutions (NBFIs), oil & gas, healthcare, basic materials, gaming, and technology. We are UNDERWEIGHT on rubber gloves
