Pre-Budget 2020 rally is a possibility, but don’t expect a meaningful one

Expectations for Budget 2020 to contain expansionary measures are mounting amid forecasts of slower economic growth and external uncertainties

by NG MIN SHEN/ pic by MUHD AMIN NAHARUL

THE local stock market could rise ahead of the tabling of Budget 2020 on Oct 11, but any rally may be limited as global uncertainties continued to cast a dark cloud over the equity market, said analysts.

The FTSE Bursa Malaysia KLCI (FBM KLCI) is already down by 5.77% since the start of the year, continuing its run as the world’s worst performer among major global indices on a year-to-date (YTD) basis.

Despite the poor performance of the main index, Bursa Malaysia Small Cap Index had jumped by 15.54% since January this year, while the Bursa Malaysia Mid 70 Index is up 7.3%.

“We’re taking a more positive view as we are expecting a pro-growth budget. There may be some speculations over the potential beneficiaries of the budget, for example, construction-linked stocks,” Rakuten Trade Sdn Bhd research VP Vincent Lau told The Malaysian Reserve (TMR).

Expectations for Budget 2020 to contain expansionary measures are mounting amid forecasts of slower economic growth and external uncertainties.

The Socio Economic Research Centre said on Wednesday the nation is expecting a business-friendly, pro-growth Budget 2020, against a backdrop of slower exports due to trade tensions, lack of investment, stagnant income growth and lack of policy direction, among others.

The think tank, which also said it sees a “high and rising” risk of a global recession going into 2020, urged the government to allow room for expansionary measures instead of the fiscal deficit reduction obsession.

RHB Investment Bank Bhd said last week it expects the budget to include a “mini fiscal stimulus package” of up to RM3 billion to counter the slowdown resulting from trade tensions.

Further stimulus to a pre-budget rally could also come from a positive outcome of FTSE Russell’s review of Malaysian government bonds due around 5am local time today, Lau added.

“If FTSE Russell keeps Malaysia in its World Government Bond Index (WGBI), that will boost the market further. So far, there seems to be a good chance of us staying in the WGBI, as yields don’t show that funds are running out the door.

“If the outcome of the review is negative, then we can expect a kneejerk reaction in markets, but macro wise things are okay as the trade war seems to be on good footing with US President Donald Trump’s impeachment,” he said.

On the flip side, Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew believes global equities markets aren’t in the most conducive conditions for a rally.

“They’re too uncertain. So I don’t think by default this time that we’re going to have a pre-budget rally. There’s a general expectation that perhaps we shouldn’t expect too much in this budget.

“The overall budgetary position of the government doesn’t leave too many options open. They want to stimulate the economy, but the lack of funds doesn’t make it easy,” Pong told TMR.

While investor enthusiasm remains subdued, markets can take refuge in trade diversions arising as a result of US-China trade tensions, he said.

“While semiconductors and electrical and electronics orders did taper for a while, they seem to have gotten some extra wind as Asian orders are up. Chinese manufacturers, especially the Chinese brands, have taken their orders to Asia. That’s leading to a bit of an uptick in the technology sector,” Pong said.

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