Malaysia’s record-breaking budget for 2025 is set to enhance foreign interest in its assets as the government advances its fiscal reforms. While the immediate effect on equities may be limited, the long-term outlook appears promising for investors.
In a budget presentation on Friday, Prime Minister Anwar Ibrahim announced plans to reduce subsidies for RON95 petrol starting mid-2025. The government is considering a two-tier pricing system: the wealthiest 15% of the population would pay market rates, while the remaining citizens would continue to enjoy subsidized prices. Economy Minister Rafizi Ramli elaborated on this in a Bloomberg Television interview, emphasizing the targeted approach to subsidy reduction.
To bolster federal revenue, the government intends to expand the scope of the national sales and services tax. Additionally, wage increases are planned to help citizens cope with rising living costs.
Maintaining fiscal health is crucial for Malaysia to uphold its strong credit rating in Southeast Asia and to boost investor confidence in its growth prospects. The Malaysian ringgit, a top performer among emerging market currencies this year, remained stable in early trading on Monday. However, the nation’s benchmark stock index experienced a slight dip of 0.1%.
Analyst Insights:
- Kenanga Research: Analysts, including Peter Kong, identified a limited number of clear beneficiaries from the budget, notably in the consumer sector. They view the government’s move to attract foreign direct investment through better incentives and a focus on high-value tech industries as a positive step. The planned introduction of a carbon tax by 2026 also signals progress toward long-term ESG objectives.
- Maybank Securities Pte: Winson Phoon noted that while Budget 2025 underscores the government’s commitment to fiscal consolidation, it may not be sufficient to significantly enhance Malaysia’s credit rating. He pointed out that improvements are needed in revenue-to-GDP and debt affordability metrics, as the country’s public debt ratio remains higher than many similarly rated peers. Phoon also mentioned that bond issuance might increase in the last quarter of 2024 to fund potential reductions in Treasury-bill issuance. The outlook for 2025 is slightly favorable, with expected declines in both gross and net issuance.
- TA Securities: The firm believes the budget measures will stimulate the economy and attract investments, leading to improved corporate earnings. They maintain their end-2024 FBMKLCI target of 1,690, based on a price-earnings ratio of 14.6 times, compared to the five-year average of 17.6.
Source: This article is based on information from Bloomberg.