The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was range bound over last week as investors awaited details from the Budget 2025 presentation on Friday for clues on the economic direction of the country and the corresponding impact on corporates. While the local market was buoyed by bargain hunting interest in key telco, banking and property stocks, regional sentiment was softer after investors were disheartened over the lack of concrete economic stimulus plans from China.

Week-on-week, the FBM KLCI gained 12.44 points, or 0.76 percent to 1,645.99, as gains on Public Bank (+26sen), RHB Bank (+17sen), QL Resources (+12sen), SD Guthrie (+11sen), Sunway Berhad (+10sen) and Maxis (+8sen) offset falls in YTL Corp (-14sen) and YTL Power (-18sen). Average daily traded volume last week declined to 2.62 billion shares versus 2.83 billion shares the previous week, while average daily traded value dwindled further to RM2.53 billion, against the RM2.57 billion average the previous week.

Market performance today will reflect investors’ reaction to the Budget 2025 that was announced last Friday as they focus on the likely beneficiaries and nonbeneficiaries or victims of this short-term blueprint. In our view it was a sensible and realistic budget that lays the foundation for a sustainable economic growth over the short-to-medium term. This underpins the government’s optimistic view of achieving an economic growth of 4.5% to 5.5% in 2025, stronger than this year’s initial guidance of 4.0% to 5.0% that was raised to 4.8% to 5.3% in this budget. Thus, Budget 2025 aside, investors will also be watching closely the 3Q24 gross domestic product (GDP) announcement today, which is forecast to expand by 5.2% based on Bloomberg consensus forecast. We are inclined to revise upward our 2024 GDP forecast of 4.7% post this announcement.

Back to Budget 2025 themed “Madani Economy: Prosperous Nation, Well-being of the People”, we believe it contains vital measures to balance economic growth with social welfare for a prosperous future. While it lacks in displaying mega infrastructure projects that could create excitement, it is not devoid of potency, boasting itself as the largest ever budget in Malaysia’s history with a total allocation of RM421bn (+3.3%). About 79.6% or RM335bn of it was meant for operating expenditure and the balance of RM86bn for development expenditure, unchanged from 2024.

While we are “Positive” on Budget 2025 impact on the economy, it lacks much excitement for the stock market. The FBMKLCI was devoid of the usual prebudget rally due to external factors and in the absence of direct incentives to excite the market, the lacklustre mood may continue post-budget. Soft data from China last Friday that showed its economy expanded by 4.6% YoY in 3Q24 or only 4.8% YoY would continue to instil fear that deflationary pressures will exert downside pressure on the world’s second largest economy. This is despite a stronger than expected industrial production and retail sales in September. Besides, investors may also turn cautious ahead of the US presidential election on 5 November despite greater foreign buying interest in the local market last week. In the meantime, the beige book announcement this week should reveal some info on current state of the US economy that may influence investors’ perception about the Federal Reserve’s next move in November meeting.

Nevertheless, the solid budget measures to drive Malaysia’s economy, attract investments and increase disposable income should boost corporate earnings and revive interest in local equities later. As such, we maintain our end-2024 FBMKLCI target of 1,690, which is based on an undemanding CY24 PER of 14.6x versus its 5-year average of 17.6x. The monetary easing cycle in global economies, especially the US, and the high likelihood of China stretching its fiscal muscle in the upcoming parliamentary meeting in November are strong external drivers that could mitigate the downside risks arising from the outcome of the US presidential election and the heightened tension in the Middle East.

Source: TA Research - 21 Oct 2024