Market cautious ahead of Budget 2022

Investors are cautiously waiting for the tabling of the budget before making any decision 


WITH Budget 2022 just around the corner, investor sentiment on the local stock market is a mix of weariness and skittishness with analysts not expecting any new tax announcement which could impact earnings for sectors like glovemakers and plantations. 

Malacca Securities Sdn Bhd head of research Loui Low expects investors to take a cautious approach to trading with minor volatility seen just ahead of the tabling of Budget 2022 tomorrow. 

“Right now, Budget 2022 seems to be pointing towards potential infrastructure thematic play for next year with focus on 5G-, telecommunication- and solar-related projects. 

“We don’t expect capital gain tax or even windfall tax to happen but there could be some announcement related to sin taxes which we have to wait and see,” he said. 

Low does not expect to see a huge change in the tax regime and expects the upcoming budget will capitalise on boosting the economy. 

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) closed 1.22 points lower at 1,583 yesterday after hitting a high of 1,613-point on Oct 20 leading to the announcement day. 

Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said the local market is looking for a catalyst and is cautiously waiting for the tabling of the budget to make a decision. 

“I think the budget would be expansionary, this will be the final budget before the general election so it will be people-friendly and beneficial to everyone. It will emphasise on recovery for the economy to have a firmer footing. We expect a lot of assistance and incentives for the reopening of the economy and for sectors such as tourism. 

“Whether there will be an increase in sin tax, I think tobacco firms that have been targeting the increase in tax will end up with less revenue,” he said. 

He noted that Putrajaya is trying to increase the tax revenue but won’t be reintroducing the Goods and Services Tax in the budget, but maybe preparing for the said tax after elections. 

Another analyst, who requested anonymity, believes the higher energy prices will help government resources but the higher expenditure expectations could lead to some sort of new taxes being introduced, perhaps in 2022 and in later years. 

Malaysia Rating Corp Bhd (MARC) raised concerns on supply and demand mismatch in regards to the gradual reopening of the nations’ economies ahead of the new budget. 

MARC noted that despite the rapid economic reopening, the unemployment rate remained high for workers aged 15 to 30 which has inadvertently affected the purchasing power. 

It added that Malaysia’s efforts towards recovery is not without challenges in the coming year. 

The rating agency noted that Malaysia’s major trading partners like China faces economic headwinds including the prospects of another wave of Covid-19 infections. 

Inflation appears to be a common theme in many global economies which MARC noted will complicate the Budget 2022 formulation process. 

“Further fiscal support with broader and stronger measures will be necessary to mitigate long-term economic scarring and ensure a strong foundation for sustainable recovery. This should subsequently help reduce the risk of weak recovery prospects becoming a trigger factor for a sovereign rating downgrade,” MARC noted. 

MARC added that the government will likely downplay the issue of revenue constraints in Budget 2022 but expects economic growth levels to return to pre-pandemic quarterly rates after mid-2022.