KUALA LUMPUR: The RM20 billion fiscal stimulus package, albeit supportive, may not be able to provide a strong boost to market sentiment, which has been battered by a multitude of internal and external uncertainties.
“In spite of the seemingly positive initial market response to the stimulus package, going forward, we reckon the package would not be able to provide a sufficiently strong impetus towards general market sentiment,” said MIDF Research in a report.
With that, the research house is forecasting a year-end baseline target of 1,600 points for the KLCI, and a slower pace of economic growth in the range of 4-4.3% compared with 4.3% for 2019.
Nonetheless, the stimulus package has widely been perceived as the best move forward in helping domestic demand and reviving investment activities.
MIDF said the stimulus package, comprising tax cuts, business incentives, cash assistances and direct investment for infrastructure projects, will cushion some of the impact from Covid-19 and other headwinds on the Malaysian economy.
“Hence, we forecast a fiscal deficit to GDP ratio to widen from the initial target of -3.2% to -3.8%, higher than -3.4% projected by the government.
“The widening factor is partially due to larger contraction than expected for government revenue as anticipation of a slowdown in GDP growth would derail the government revenue target of RM244.5 billion this year,” it said.
The research house also noted that despite expectation of overall moderation in GDP growth, a rebound in public investment is anticipated, with the government expected to ramp up its spending this year through development medium in order to strengthen capital formation towards ensuring long-term growth sustainability. Private consumption will continue to the biggest contributor to the overall economic growth in 2020.
“Some of the rakyat-centric measures announced in the stimulus particularly the reduction in the minimum EPF contribution by employees from 11% to 7% would mean there will be more disposable income for the employees to spend, contributing to the growth via private consumption. In addition, earlier payout of the BSH to Mar 20 from the initial schedule in May-20 would be supportive to the consumption,” it said.
In its report, PublicInvest Research, which revised downward GDP forecast to 3.8% from 4.4% previously, said the cut to EPF contributions is expected to release about RM10 billion into the pockets of consumers, which may boost spending and revive consumer confidence.
Meanwhile, AmInvestment Research noted that additional funding for the stimulus package is expected to come from monetary operations.
“A statutory reserve requirement (SRR) reduction is in our cards. A 50-basis point cut in the SRR should release around RM8–9 billion. Room for the SRR to be reduced as much as 100 basis points cannot be ruled out.
“Likewise, while we have factored in a 25 basis point Overnight Policy Rate cut in March which is currently at 2.75%, the possibility for a 50 basis point cut is on the table,” it said.
As for beneficiaries from the stimulus package, CGS CIMB said these will be the consumer, construction and tourism-related sectors.
“Malaysia Airports may see a negative impact as it has been called to provide rebates for shop rentals at its airports, as well as discounts on its landing and parking charges. Overall, the stimulus package is unlikely to have a significant impact to our KLCI earnings.” the research house said.
CGS CIMB is maintaining its year-end KLCI target of 1,636 points and its top picks of Yinson Holdings Bhd, Tenaga Nasional Bhd and Pentamaster Corp Bhd.
Affin Hwang Capital Research said the initiatives are mostly positive for the construction, tourism, consumer and the manufacturing sectors.
“Other than for construction, we would nevertheless read these measures as propping up the already frail sector prospects rather than providing a significant leg up to growth.
“Some key beneficiaries include tourism plays like Genting Malaysia Bhd and possibly non-discretionary consumer plays such as Aeon Co (M) Bhd, Bonia Corp Bhd, and Hai-O Enterprise Bhd including the likes of auto companies such as, UMW Holdings Bhd and MBM Resources Bhd,” it said.
