KUCHING: Analysts from TA Securities Holdings Bhd (TA Research) believe Budget 2015 may not contain enough surprises to excite the market given that investors have a clear sense of what to expect based on the long-term nature of projects announced in the past three budgets.
In line with the Budget 2015 theme “Accelerating Growth, Ensuring Fiscal and Sustainability and Prospering the Rakyat”, measures to be announced for the new year are expected a strike a balance in achieving the fiscal deficit target of three per cent without affecting the economic growth momentum and wellbeing of the broader population.
“To do that, the government will rightly broaden its revenue base via the implementation of Goods and Services Tax while pursuing selective measures to push the subsidy burden to middle and high income categories,” it said.
“As usual the low and poor income categories will be shielded from the vagaries of cost escalation through incentives and handouts.
At the same token, emphasis will be given to incentivize high growth sectors to attain the GNI per capita of RM15,000 by 2020.
“However, the Budget may not contain enough surprises to excite the market given that investors have a clear sense of what to expect based on the long-term nature of projects announced in the last three budgets.”
Historically, based on last 17 years that TA Research tracked, the benchmark index showed strong tendency to rally in the two-week period prior to budget with a gain ratio of 82.4 per cent and an average gain of three per cent.
“Nonetheless, the momentum dissipated post-budget as corrections mostly ensued during the following two weeks period with a probability of 58.8 per cent and an average loss of 3.8 per cent,” the firm observed.
“From a total average return perspective, the FBM KLCI tends to underperform during the first two months of post-budget announcement before bouncing back for a year-end or new year rally.” TA Research expects a similar behaviour this year with index rising during the pre-budget period (with improved external climate like stronger US economic data and Scotland remaining in the United Kingdom providing further boost) but concerns over rising cost pressure and slower earnings growth could resurface post-budget to affect investors sentiment.
On that score, TA Research believes the coming budget should provide the final touches and details for many of the highlights in prior year budgets before the veil is brought down on 10th Malaysia Plan (10MP).
An expansionary budget is expected with an allocation of RM280.5 billion split into RM230.6 billion for operating expenses and RM49.9 billion for development expenditure.
Compared to a smaller increase of three per cent in total allocation for Budget 2014, we expect the 5.4 per cent increase in Budget 2015 is necessary to compensate for the increase in prices of goods and services post implementation of Goods and Services Tax (GST) next year.
The development budget is expected to increase by a strong 12.2 per cemt (versus 5.4 per cent seen in 2014) to add up to the RM230 billion allocated for such cause in 10MP.