Putrajaya plans to cut the subsidy for the widely-used RON95 petrol from mid-2025, Prime Minister Anwar Ibrahim said in his budget presentation last Friday.
The government is mulling a two-tier price system for the fuel so that the wealthiest 15% pay the market rate for it while the rest enjoy the current subsidised price, economy minister Rafizi Ramli said in a Bloomberg Television interview on Saturday.
The scope of the nation’s sales and services tax will also broaden to boost federal revenue, while wages will be hiked to help mitigate higher living costs.
Rebuilding fiscal health is key for Malaysia to retain emerging Southeast Asia’s highest credit score and lift investor confidence in the country’s growth prospects, supporting its local assets.
The ringgit, the top performer across emerging markets this year, was little changed in early trading in Kuala Lumpur today. The nation’s benchmark stock index slipped 0.1%.
Here’s what analysts said about the budget:
Kenanga Research
There’s only a “small pool of clear cut winners, such as the consumer sector,” with a positive on discretionary names given clarity that the subsidy pinch will be confined to those at the loftier income brackets.
The government is sowing the seeds to continually pull in foreign direct investments (FDI) through better incentives and higher value tech businesses, which should keep foreign interest high in the local market. The country is also easing into long-term ESG goals with the introduction of carbon tax by 2026.
Maybank Securities
“Budget 2025 reaffirms the government’s commitment to fiscal consolidation but may be insufficient to open up room for rating upside decisively.
“The revenue/GDP and debt affordability metrics need improvements and Malaysia’s public-debt ratio remains higher than the majority of similarly-rated peers.”
Bond issuance in the final quarter of 2024 is likely to increase to fund a potential run-down in Treasury-bill issuance.
However, the supply profile is “slightly favourable” in 2025 with expectation of a RM19 billion decline in gross issuance and RM10 billion drop in net issuance. The US$1 billion maturity in April 2025 is likely to be refinanced in foreign currency.
TA Securities
The budget measures are set to drive the economy and attract investments, contributing to better corporate earnings.
Maintains end-2024 FBMKLCI target of 1,690, which is based on a price-earnings ratio of 14.6 times versus its five-year average of 17.6.
Apex Securities
The budget is largely neutral as it seeks to alleviate concerns over the high cost of living, which is likely to lead to increased domestic spending in the future.
The upward revision of economic growth projection may signal stronger corporate earnings growth. As a result, “Bursa Malaysia may sustain its recovery move” after rising about 13% this year.
For now, the market may react slightly negatively toward the introduction of a 2% tax on dividend income exceeding RM100,000 in 2025. Still, the construction, consumer, tourism-related, healthcare, gloves, property and technology sectors are likely beneficiaries from the budget.
CIMB Securities
“We expect the equity market’s reaction to the 2025 budget to be neutral to slightly negative.”
The surprise introduction of a new tax on dividend income may reduce the appeal of dividend-yield stocks for individuals impacted by the tax.
“The proposal to mandate employers to make Employees Provident Fund contributions for foreign workers could raise costs and pose earnings risks for companies. We maintain our KLCI target of 1,732 points. Among our overweight sectors, construction and healthcare stand to benefit from the measures introduced in the budget.”
Oversea-Chinese Banking Corp
Bank Negara Malaysia will remain watchful of inflationary pressures which are expected to rise on the back of the minimum wage increase and other fiscal measures.
“While our baseline is for BNM to keep its policy rate unchanged at 3% in 2024 and 2025, we will continue to assess the risks around this baseline based on fiscal outcomes.”