MIDF said overall there were no major surprises in Budget 2024 at its headline level to materially excite or perturb the equity market. The total spending in Budget 2024 is proposed at RM393.8b and total revenue for next year is estimated at RM307.6b thus projecting a fiscal deficit of RM86.2b in 2024.
Notably, the proposed amount allocated for gross development expenditure of RM90.0b is well within the house expectation. The percentage of fiscal deficit to GDP is expected to decline from -5.0% this year to -4.3% in 2024 as the economy is forecasted to grow by between 4.0% and 5.0% next year. Hence, the nation’s sovereign risk would not likely be compromised despite the further accumulation of fiscal debt. Moreover, the medium-term target of fiscal deficit to GDP is set at 3.0%.
Meanwhile, at a granular level, the proposed cutback in subsidies such as electricity and diesel can be seen as a preamble to more widespread subsidy rationalisation in ensuing years which is vital to sustainably improve the nation’s fiscal position. Moreover, the proposed implementation of capital gains tax at 10% starting 1 March 2024 on the disposal of non-listed shares with a possible exemption for initial public offering may attract more listings on the equity market. Besides, the proposed tax exemption on income from Islamic Securities Selling and Buying (ISBB) would raise the volume and liquidity in the equity market. MIDF reckons the CGT as well as tax exemption on income from ISBB could act as catalysts to reinvigorate the local Bursa Malaysia equity market.
FBM KLCI ended higher despite regional weakness. It seems the knee-jerk reaction to Budget 2024 was a tad positive as the FBM KLCI ended slightly higher on Friday. In contrast, almost all other regional equity indices closed lower arguably in reaction to the overnight decline on Wall Street. External factors continue to hold sway over equity market sentiment. However, going forward, MIDF expects external factors namely US economic data and interest rate outlook to continue driving equity market sentiment.
In this Budget 2024 regard, the house believes investors are beginning to look beyond the possibility of a final US Fed hike this year and taking more heed of the favorable growth and inflation outlook into next year. It must be highlighted that recently the US Fed revised upward its GDP growth projections for 2023 and 2024 to 2.1% (from 1.0%) and 1.5% (from 1.1%) respectively. Moreover, its inflation (Core PCE) projections for 2023 and 2024 were revised down to 3.7% (from 3.9%) and maintained at 2.6% respectively.
Maintain FBM KLCI end-2023 target at 1,540 points. In view of the Budget 2024 meeting the broad expectations, MIDF
therefore maintains its FBM KLCI end-2023 target at 1,540 points or PER23 of 15.4x. Similarly, it maintains FBM70 end-2023 target at 14,500 points or PER23 of 19.2x
Top picks of possible winners are the construction sectors and the power, the house also opines that it is worthwhile for investors to look at stocks in these sectors.
