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Institutional – How to trade the aftermath of Budget 2019?

Trading Room – Mon 5 Nov 2018

The government has revealed Budget 2019 on last Friday where it will continue with an expansionary budget with a budget deficit of 3.7% that takes into account the need to repay unrefunded taxes and maintaining economic growth at a high level.

While we will not go into the specifics of the Budget as it is widely reported, the budget turned out to be expansionary instead of a contractionary budget expected by the market.

The government has guided that the fiscal deficit is to widen from 3.0% of gross domestic product (GDP) to 3.7% of GDP in 2018, thereafter 3.4% in 2019. Meanwhile, the 11th Malaysia Plan (11MP) mid-term has already targeted the deficit to be back at 3.0% by 2020 – reflecting total commitment in government prudence and consolidation in expenditure.

It was reported that the market should take the news well that the government is cost-conscious and in the right direction to reduce the deficit to 2.0% over the medium term.

Rating agencies Moody’s and S&P views were also reported to be neutral to slightly positive on the effects of the budget on the country’s finance.

On listed companies, the main winners of the Budget were reported to be consumer-based companies (tax refund and continuation of targeted subsidies to low-income households), semiconductor and glove companies (potentially weaker ringgit on higher deficit) and tobacco and brewers (absence of tax hike).

The main losers were reported to be casino operators (license and levy increase), number forecast operators or NFOs (50% reduction in special draws) and beverage and sugar refining players (soda tax).

Mild losers could be logistic companies (where petrol subsidies are now more targeted), airlines and travel players (new departure levy on outbound air travelers) and property developers (reduction in house prices by 10% and upward revision in the Real Property Gains Tax).

Going by the above analysis, trading opportunities (long and avoid/short where regulations permit) are likely available on the following sectors and companies as highlighted in our mPower Algorithm and mPower Trading reports to institutional funds.

We are particularly interested in several players in the consumer, gaming/NFOs and tobacco/brewers which are likely to attract trading interest in the aftermath of the budget.

Watch the key levels and other criteria highlighted in the report to initiate potential short-term rewarding trading positions.

We mention short term as the budget is largely seen as neutral and there are several forces which are actually in play in determining the longer-term direction of the market as highlighted in our previous reports and views. Do not lose sight of the more critical bigger picture while trading the shorter term opportunities.

Note: Certain info presented in the tables above has been redacted to comply with the agreement with elite members of the mPower Algorithm program and mPower Trading program and certain institutional clients. The 300 stocks are the full list of consensus stocks tracked by analysts. The above analysis reflects our personal view only and is subject to terms of use. Please refer to the full report inside for the complete info.