Potential Opportunities Amid Budget 2025: A Closer Look at Key Sectors

Moomoo News MY wrote a column · Oct 16 01:53

Leading up to Budget 2025 on 18 October, the Ministry of Finance has released its pre-Budget statement, and other government ministries have put forward various proposals. JP Morgan highlights three key points that investors should pay attention to regarding the upcoming budget:

1. The 2025 budget is expected to remain prudent, with a tendency for development projects to involve private sector participation. Institutions anticipate that key infrastructure projects will see increased involvement from the private sector.

2. Key fiscal consolidation measures will include wage increases, subsidy rationalization, and an expanded tax base. This will likely be achieved through the possible reintroduction of the Goods and Services Tax, rationalization of RON95 fuel subsidies, and adjustments in development spending.

3. JP Morgan believes that the technology and real estate sectors present the most opportunities, while the consumer sector may experience some short-term challenges.

Potential Opportunities Amid Budget 2025: A Closer Look at Key Sectors

The previous article has summarized predictions from various research institutions regarding fiscal spending, revenue, and deficit rates, as well as directions of market interest. Investors are also closely monitoring which sectors and companies will be affected by Budget 2025.

Construction Sector

In its pre-Budget statement, the Ministry of Finance expressed its commitment to achieving a fiscal deficit of at least 3% in the medium term, with fiscal policy continuing to support private sector-led growth.

The government's development expenditure (DE) ceiling has been raised to MYR 415 billion, facilitating infrastructure spending through public-private partnerships.

The pre-Budget statement also emphasized that Government Linked Investment Companies (GLICs) and Government Linked Companies (GLCs) will invest an additional MYR 440 billion in the domestic capital market over the next five years, with a commitment to direct investments (DDIs) of MYR 120 billion.

Potential Positives: JP Morgan pointed out that clearer implementation timelines for key infrastructure projects such as the Penang and Johor Light Rail Transit (LRT) and MRT3 will provide greater certainty for project execution, positively impacting market sentiment. Additionally, RHB maintains an OVERWEIGHT rating, citing manageable material costs and a sufficient supply of labor.

Property Sector

The Ministry of Housing has proposed providing deposit support of up to MYR 30,000 for first-time homebuyers and introducing policies to reduce the risk of real estate projects being abandoned.

Mah Sing has suggested reinstating the "Home Ownership Campaign" (HOC), which includes stamp duty exemptions and discounts on purchase prices for first-time buyers.

Potential Positives: RHB remains optimistic about the real estate sector, expecting that the government will not implement any tightening measures, especially as the market has just begun to recover from the impacts of the pandemic. JP Morgan also indicated that measures aimed at reducing upfront costs for first-time homebuyers could serve as a positive catalyst for domestic real estate sales. Additionally, the revised Malaysia My Second Home (MM2H) policy aims to attract more foreign applicants and promote property purchases.

Potential Negatives: JP Morgan has also noted that luxury properties may be subject to the High-Value Goods Tax. The introduction of this tax could impact luxury goods sales in high-end shopping centers such as KLCC, Pavilion, and The Gardens Mall.

Technology Sector

The government has outlined its goal of establishing 10 integrated circuit (IC) design and advanced packaging companies in Malaysia, with revenues ranging from MYR 1 billion to MYR 4.7 billion.

The Prime Minister also detailed a plan to enhance the skills of 60,000 engineers under the National Science Strategy (NSS).

Potential Positives: The government's focus on promoting high-growth, high-value investments, along with possible increases in funding for the national semiconductor strategy, could drive innovation and business development within the technology sector. Maintaining tax incentives, such as pioneer status and capital allowances, will continue to encourage innovation and investment among tech companies.

Potential Negatives: The implementation of a 15% global minimum tax on multinational corporations may diminish Malaysia's appeal as a destination for foreign direct investment (FDI).

Renewable Energy Sector

The government is likely to increase funding support for renewable energy development and strengthen grid infrastructure to facilitate companies' Renewable Energy Supply Scheme (CRESS).

A significant aspect of Budget 2025 could be the extension of cash rebates under the Net Energy Metering (NEM) program, aimed at promoting solar adoption among homeowners, particularly within the B40 income group, through low-interest loans and subsidies.

RHB maintains an OVERWEIGHT rating on thec'l energy sector, noting that the government is expected to continue prioritizing green energy initiatives in alignment with the National Energy Transition Roadmap (NETR).

Consumer Sector

The Prime Minister stated that the Budget 2025 will focus on addressing and reducing the cost of living.

The Ministry of Finance, in its pre-Budget statement, indicated that the tax base will be expanded.

Additionally, the Prime Minister hopes that the private sector will review wage plans to offer more reasonable compensation.

RHB anticipates that the upcoming budget will provide cash assistance to low-income groups, bonuses for civil servants, and continued subsidies for the B40 income group. JP Morgan noted that potential subsidy cuts and tax increases may initially suppress consumer spending. However, buffer measures such as salary increases for civil servants and reallocating fiscal savings to vulnerable groups could lead to better performance in essential goods compared to non-essential items.

Mooers, what are your thoughts on the upcoming Budget 2025? Please leave your comments in the comment section.

Source: RHB, J P Morgan, moomoo, the Edge Malaysia

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