Malaysia stock market may be buoyed by Najib budget

The 2018 budget is likely to include an increase in cash handouts, infrastructure spending

by BLOOMBERG

Malaysia’s government spending could revive gains in the stock market that is South-East Asia’s worst performer despite receiving the most foreign investment in the region.

The 2018 budget to be released on Oct 27 is likely to include an increase in cash handouts and infrastructure spending that will filter through to consumption stocks, builders and construction material suppliers, said Rudie Chan, the CIO at Eastspring Investments Bhd in Kuala Lumpur. Prime Minister Datuk Seri Mohd Najib Razak has said the budget will address the cost of living for citizens and also housing issues, according to Bernama.

“The budget is going to be expansionary, there’s no question about it,” said Chan, whose Malaysian small-and mid-cap fund has returned an average 24% annually over the past five years to beat 90% of its peers.

Najib’s spending plan, which will be the final one announced before a national election that must be called by mid-2018, could help spur gains beyond technology companies that have been the best stock performers this year. While Malaysia has received RM9.5 billion in foreign investment since the start of January as its economy grew at the fastest pace since 2015, the FTSE Bursa Malaysia KLCI (FBM KLCI) has only added 6.9%, lagging behind the 23% gain by the MSCI Asia Pacific Index.

Even as gains on the FBM KLCI of 30 companies lagged regional peers, technolog-yrelated shares not tracked by the benchmark have fared better. The Bursa Malaysia Technology Index, the best performing industry gauge out of 10, has jumped 77% this year and closed at a 12-year high last Friday, driven by the global demand for electronic products that are fed into the global technology supply chain from the country.

Property developers including Mah Sing Bhd and SP Setia Bhd could benefit from the upcoming budget, as Najib is set to address the lack of affordable housing, according to a report by Ivy Ng Lee Fang and Michelle Chia, analysts at CIMB Group Bhd.

“This would be an election budget that would pull out all the stops I suppose in terms of ensuring that the rakyat is shielded to a certain extent from the higher cost of living,” said Geoffrey Ng of Fortress Capital Asset Management Sdn Bhd.

Yet, even with a potential boost from the budget, Malaysia is less attractive than its peers, said Ng, who is ‘Underweight’ the nation. Hong Kong and, to a certain extent, Singapore are more liquid and have cheaper valuations, he said.

For Eastspring, trends in consumer spending will determine how the stock market performs. Investors should watch out for any gains in expenditure on products ranging from cars to basic staples, as government initiatives become the market’s next big driver for the following couple of quarters, Chan said. — Bloomberg