But analysts said several sectors, including construction, consumer, retail, automotive, aviation, hospitality, banking and property, were key beneficiaries from the budget next year.

PETALING JAYA: Budget 2018 is expected to have a neutral to mildly positive impact on the overall local equity market.

But analysts said several sectors, including construction, consumer, retail, automotive, aviation, hospitality, banking and property, were key beneficiaries from the budget next year.

According to Affin Hwang Capital Research with the budget’s emphasis on improving disposable income, the consumer sector would be positively impacted.

“From an equity stand, we do not expect Budget 2018 to fully excite the market, although it does provide sufficient drivers to lift consumption spending, manufacturing capital expenditure and continued construction activity,” the brokerage said in its report.

Affin Hwang Capital Research noted that construction would remain a key focus given the various development projects, even though the lower-than-expected development expenditure of RM46bil under Budget 2018 was a negative surprise.

In addition, it said the budget was expected to have some positive implications on the local finance sector, thanks to the stamp duty exemption for trading of exchange-traded funds and structured warrants.

Affin Hwang Capital Research maintained its “overweight” rating on local stock market, with an end-2017 target of 1,813 for the FBM KLCI based on 17.7 times estimated earnings for the year.

It based its positive outlook on a firm gross domestic product (GDP) growth, accompanied by a synchronised global recovery, the expected appreciation of the ringgit and undemanding valuations.

Meanwhile, Alliance Research opined that improvement in corporate earnings would be a more important element to justify a re-rating of the overall equity market.

“While Budget 2018 is likely to boost consumer sentiment, the direct impact on Malaysian equities is largely neutral in the near term as we believe corporate earnings need to improve further to support any re-rating.

“We would need to monitor the spillover effect of a consumption recovery on the wider economy,” the brokerage said.

Among sectors that would warrant attention, according to Alliance Research, are banking (for signs of loan growth pick-up), property and automotive (for signs of demand recovery).

“Going into 2018, we believe the key themes for Malaysian equity are consumption recovery, robust exports, and transport-related infrastructure.

“However, as these themes become more crowded, especially exports and infrastructure, execution by corporates to deliver tangible earnings accretion is important to support further re-rating given that valuations are no longer cheap,” it explained.

Alliance Research reiterated its expectation that the FBM KLCI would hit 1,870 by end-2018, implying 16.5 times price-earnings.

Similarly, Hong Leong Investment Bank Research (HLIB) is mildly positive on the budget, citing the Government’s commitment to maintain economic resilience by raising disposable income and promoting investments; and the wide-ranging measures to benefit the broader economy.

“The positive spillover of domestic sectors is expected to sustain economic momentum, and hence is incrementally positive for corporate earnings,” HLIB said.

The brokerage said the beneficiary sectors would be automotive, thanks to measures to encourage car ownership, aviation on tourism measures, construction on sustained development expenditure and infrastructure projects, consumer on income tax cut and education on higher allocation.

HLIB expected the FBM KLCI to move slightly higher towards the end of the year on decent domestic data amid strong tendency of year-end rally.

It maintained its end-2017 FBM KLCI target at 1,760 based on 16 times 2018 earnings.

Separately, CIMB Research opined that there were no losers under Budget 2018.

“We view the Budget 2018 as mildly positive for the market. The personal income tax cuts and special payments to civil servants should boost consumption and benefit consumer companies. Contractors should gain from the increase in the value of construction projects.

“Meanwhile, brewery, tobacco and gaming sectors did not see an increase in taxes. We believe no sectors are worse off after the budget,” the brokerage explained.

On its list of beneficiaries, CIMB Research said besides construction being a big winner, the property market would benefit from initiatives to push for more affordable housing projects, while the healthcare sector would benefit from increased allocation and other incentives.

It also expected the aviation, hotel, food and beverage, shopping mall and transportation industries to benefit from the Government’s initiatives to boost tourism in Malaysia.

CIMB Research maintained its end-2017 FBM KLCI target at 1,790, and set its end-2018 target at 1,920. Both targets were based on 16 times price-earning.

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