2024 Budget: Massive challenge to balance spending and keeping to the fiscal deficit target - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

BUDGET 2024 was a well-crafted Budget, as the Government balances between government spending and fiscal deficit.

Nonetheless, the government has posted its largest budget ever, at RM393.8 billion, comprises RM303.8 billion for operating expenditure and RM90 billion for development expenditure.

Overall, with a record amount, the government targets a GDP growth of 4.0% - 5.0% in 2024, with a smaller fiscal deficit of 4.3%.

Key beneficiaries of the Budget 2024 are:

Construction sector with major projects like the revival of the five LRT3 stations costing RM4.7 billion; Pan Borneo Highway which cost RM15.7 billion; widening of the North South Expressway in the Sedenak-Simpang Renggam stretch in Johor (RM931 million) and the RM10 billion Penang LRT connection between Seberang Jaya and Penang Island.

Tourism sector with the designation of 2026 as Visit Malaysia Year to spur an estimated domestic expenditure of RM97.6 billion, RM350 million allocation to boost tourism promotion and the relaxation of the MM2HE requirements.

Healthcare sector with RM41.2 billion allocation to improve services, RM1,000 tax relief for individuals to participate in sports activities & purchase sports related equipment. 

Education sector with an allocation of RM58.7 billion, 10%-15% discount for PTPTN loan repayments between October 2023 to March 2024, RM6.8 billion allocation for Technical Vocational Education & Training (TVET) and the extension of the RM2,000 tax relief for individuals attending upskilling courses to 2026.

SME sector with RM8 billion loan fund, RM1.5 billion from GLC to encourage start-ups, RM1.6 billion worth of loan facilities for PMKS bumiputera entrepreneurs, micro loan facilities from BSN (RM1.4 billion) and TEKUN (RM330 million).    

The government has also widened its tax base with the:

1. Increase in the Sales and Services Tax to 8.0% in 2024 from 6.0% in 2023 but the food, telecommunications segments are exempted.
2. Increase in excise duty on sugary pre-mixed beverages to RM0.50 per litre from RM0.40.
3. Introduction of the Luxury Goods Tax of between 5%-10% in 2024 for high value goods.
4. Introduction of Capital Gains Tax on disposals of Unlisted Securities at 10% from March 2024.  

Balancing Act

The key challenge would be the balancing act between spending and keeping to the fiscal deficit target. The target of 4.3% look reasonable for now. This is at the back of rationalization of subsidies, new tax revenue and the growth target.

In my opinion, this can be very challenging especially is continue escalation of global crude oil prices and on-going political uncertainties. This poses further damage on government ambition to bring down the fiscal deficit to 3% by 2025.

KLCI Index

The market rose over the past week driven by regional market sentiments and anticipation of goodies being announced in Budget 2024. The benchmark KLCI Index rebounded back strongly to end the week at 1,444.14 points on the back of strong buying activities from local institutional funds in the early part of the week.

As such the KLCI Index surged past the 1,430-points resistance barrier but could not breach the 1,450 points level. However, the average trading value each day for the past week was slightly less than RM2.0 billion or about 5% lower on a weekly basis.

As Budget 2024 is an expansionary budget, I am optimistic that the market has the legs to go higher to challenge the 1,450 level and adjust my trading range for the KLCI to between the 1,430 and 1,450 points range in the coming week.

Bond yields in the US fell back over the past week as bond fund managers have more or less completed their portfolio rebalancing exercise and raised expectations that the US Federal Reserve may hold the Federal Funds Rate at 5.25% - 5.50% at its upcoming Federal Open Market Committee meeting on 31 October – 1 November 2023.

So far, the economic data being released suggest that inflationary pressures are easing but not as quickly as the market expects. Both the US consumer price index and the producer price index for the month of September 2023 came in slightly higher than expected.

UST 10-year yields fell 19 basis points last week to 4.61% but the impact to the local 10-year the MGS yield was minimal as it just fell by just two (2) basis points last week to 4.03. This narrows the negative yield differential between the 10-year MGS and UST to 58 points which is still relatively substantial.    

The performance of the Ringgit was mixed over the past week as it gained some ground against the Euro and British Pound but was marginally lower against the Singapore Dollar, Japanese Yen and the US Dollar.

We reckon that the selling pressure from foreign institutional funds are slowing tapering off with the Ringgit ending the week at RM4.7250 against the US Dollar. Given the slowing volatility of the Ringgit against the Dollar, I am maintaining my expected USD-MYR range of between RM4.65 – RM4.75 for the coming week. - DagangNews.com