Budget 2020, US-China trade deal to set tone for equity market this week

Investor sentiment on market abroad turns positive on progress made on trade talks between top US and Chinese negotiators

Pic By TMR File  

TRADING on Bursa Malaysia is expected to be mixed today as investors weigh in on revived optimism on the US-China trade talks with the lacklustre Budget 2020, which fell short on market expectation of an expansionary budget.

Investor sentiment on market abroad turned positive on progress made on trade talks between top US and Chinese negotiators which US President Donald Trump characterised as “very, very good”.

Trump stated that it could take up to five weeks to get a pact written. He acknowledged that the agreement could fall apart during the period, though he expressed confidence that it would not.

Meanwhile, Budget 2020’s measures on the digital economy and effort to alleviate the overhang in the local property market are set to drive investors’ interest into counters in the property, technology and construction sectors.

MIDF Research head of research Mohd Redza Abdul Rahman said Budget 2020 is inclusively for all Malaysians, especially with its focus on the key pillars of the 11th Malaysia Plan — namely in ensuring the wellbeing of the citizens and enhancing inclusive economic growth.

“It is also designed to weather the concerns of declining global economic growth arising from geopolitical events such as the US-China trade war, through re-engineering of economic growth, by emphasising on the accelerated growth of small and medium enterprises and adoption of the digital economy, as well as improving the efficiency and productivity,” he said.

However, he added that the budget tabled last Friday by Finance Minister Lim Guan Eng fell short on investor expectations, and therefore, we might not see drastic market reaction today.

Mohd Redza said one beneficiary from the measures in Budget 2020 would be the property sector as incentives, such as the lowering of the minimum threshold for foreign purchase to properties to RM600,000 from RM1 million, may help clear the overhang situation.

The lower price threshold will benefit high-rise property prices in urban areas with the aim to reduce the supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019.

Rakuten Trade Sdn Bhd research VP Vincent Lau said Budget 2020 overall is a responsible, pragmatic budget that aims to promote sustainable growth and remains a business-friendly and caring budget for all.

“We expect the market to react positively with a post-budget rally coupled with the positive sentiment on a possible trade deal between the US and China,” he told The Malaysian Reserve.

Separately, a local investment banker said the overall budget should be supportive towards consumer stocks with several initiatives introduced, but it would not translate into a major market moves as it has already been priced in.

“The market was experiencing a slightly expansionary budget too,” he added.

Affin Hwang Investment Bank Bhd in strategy report on Saturday noted that Budget 2020 would likely be deemed unexciting by market participants who were anticipating aggressive and stimulative spending and tax cuts amid increasing external headwinds.

The investment bank added that given the unattractive market valuations and lacking catalysts, it maintained its ‘Neutral’ call on the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) with an unchanged 2019 year-end target of 1,650 points.

Ample domestic liquidity and the FBM KLCI’s relative attractive dividend yields of 3.5% should provide downside support, it added.

Technology stocks gained last Friday as investors scrambled to react after Lim’s announcement to move on with the multibillion ringgit National Fiberisation and Connectivity Plan (NFCP).

Telekom Malaysia Bhd’s shares closed 5.31% or 18 sen higher at RM3.57 last Friday, while Opcom Holdings Bhd’s shares closed 7.64% or five sen higher at 78 sen, whereas Axiata Group Bhd’s shares closed 0.47% or two sen higher to RM4.29.

Lim said the government will create the necessary infrastructure to construct a Digital Malaysia by implementing the NFCP over the next five years to provide comprehensive coverage of high-speed and quality digital connectivity nationwide, including rural areas.

The NFCP will adopt a public-private partnership approach involving a total investment of RM21.6 billion.

The government, through the Malaysian Communications and Multimedia Commission (MCMC), will finance at least half of the required investment with corresponding investments by private sector telecommunications players via a matching grant mechanism.

MCMC will allocate RM250 million to leverage on various technologies, including via satellite broadband connectivity.

The government will allocate RM210 million to accelerate the deployment of new digital infrastructure for public buildings, particularly schools and also high impact areas such as industrial parks.

“Priority will be given to locations within states that are able to facilitate and expedite the implementation of the NFCP,” Lim said.

The government will introduce a 5G Ecosystem Development grant worth RM50 million to seed technological developments by Malaysian companies to ride the global 5G wave. An allocation of RM25 million will be given to set up a contestable matching grant fund to spur more pilot projects on digital applications such as drone delivery, autonomous vehicle, blockchain technology and other products and services that leverage on the investments in fibre optics and 5G infrastructure.

The government will offer a one-time RM30 digital stimulus to qualified Malaysians aged 18 and above with an annual income of less than RM100,000 to use e-wallets.

The one-time digital stimulus per person can be redeemed and used for a two-month period commencing Jan 1, 2020, and expires on Feb 29, 2020. Putrajaya will allocate up to RM450 million to Khazanah Nasional Bhd to implement this digital stimulus, which will benefit up to 15 million Malaysians.

Mohd Redza noted that the stimulus to increase usage of e-wallets will be net positive to companies like Boost (Axiata’s subsidiary), Touch ‘n Go Sdn Bhd and GrabPay.

“While the implementation of NFCP will benefit companies involved in the provision of telecommunication network services such as Sacofa Sdn Bhd (part of Cahya Mata Sarawak Bhd), Opcom and OCK Group Bhd,” he said.

The construction sector could attract some interest as the government has decided to proceed with the Bandar Malaysia project which involves 486 acres (196.7ha) parcel of land at Sungai Besi, Kuala Lumpur, after having negotiated better terms for the government.

“The project will now include a People’s Park, with an additional 5,000 units of affordable homes and greater Bumiputera participation throughout the project. Proceeds from the project will be valued and announced in due course, and will be utilised to reduce the debts of 1Malaysia Development Bhd,” Lim said last Friday.

The investment banker said the construction stocks may not see much movement as most of the expectations surrounding higher infrastructure spending has already been channelled into the market.

“There were no new announcements regarding any new projects except for Bandar Malaysia, but even that, details are still unclear for the moment,” he said.

The Cabinet has approved the proposed purchase of four Klang Valley highways — Shah Alam Expressway, Damansara-Puchong Expressway, Sprint Expressway and SMART Tunnel from their respective owners and will be funded with government-guaranteed borrowings.

Congestion charges will then be introduced to lower toll rates, which will provide savings to the highway users of nearly RM180 million a year or RM2 billion over the respective concession periods.

“There will be no extension of the existing concession and will end according to the existing concession contract,” Lim said.

Gamuda Bhd closed 0.27% or one sen lower to RM3.75 last Friday ahead of this announcement, while IJM Corp Bhd’s share price closed 3.18% or seven sen higher to RM2.20. Lingkaran Trans Kota Holdings Bhd’s shares price closed 1.97% or nine sen higher at RM4.66.

Lau believes that the takeover of the four highways is positive for Gamuda, as this has been delayed since it was announced back in June.

“Iskandar Waterfront City Bhd and Ekovest Bhd will be in focus as Bandar Malaysia is back on track. Meanwhile, the Penang Transport Master Plan getting the go-ahead under Package 2 costing RM851 million will benefit Vertice Bhd,” he said.