In Franklin Templeton’s view, investors are currently pricing in another 2bps rate cut in November 2019 or latest by the first quarter 2020 due to the perceived sluggish growth scene arising from external headwinds. — AFP photo
KUCHING: Budget 2020 introduced several measures to which Franklin Templeton GSC Asset Management Sdn Bhd (Franklin Templeton) believes will support the local equity market scene in spite of uncertainties in the global sector outlook.
Chief executive officer and head of Malaysia (fixed income and sukuk) Hanifah Hashim in a statement commended the government’s move to target strategic points within the economy.
“The budget deficit target for 2020 is higher than the previously announced three per cent, and in our view the market, and relevant rating agencies, have priced-in the new higher target rate of 3.2 per cent.
“The revised rate remains on a declining trend from the 3.4 per cent deficit expected in 2019,” she said in a statement. “Given the more volatile and unpredictable nature of global trade trends going forward, we agree that the government needs some headroom for an expansionary fiscal policy and do not expect ratings to be impacted.”
Meanwhile, Hanifah saw that the bond market has largely priced in the higher fiscal target deficit of 3.2 per cent.
In Franklin Templeton’s view, investors are currently pricing in another 25 basis points (bps) rate cut in November 2019 or latest by the first quarter 2020 due to the perceived sluggish growth scene arising from external headwinds.
“However, the higher inflation rate target of two per cent and higher GDP growth target of 4.8 per cent, lowers the probability of another rate cut in the short term,” she added. “Notably, Malaysia was ahead of its regional peers in terms of monetary easing.”
“We expect bond yields to trade sideways due to a higher inflation target implying an upward bias in bond yields, though lower gross MGS supply should keep yields supported in 2020.”
As fiscal deficit in 2020 will be compressed by 0.2 per cent from 3.4 per cent, Hanifah said supply should be on a declining trend year-on-year.
On the other hand, given unpredictable global trade trends, any wildcard may cause an uptick and we expect bond yields to be volatile as a result,” she added.
On Budget 2020’s impact on equity market scene, Franklin Templeton emerging markets equity senior managing director and director of portfolio management Sukumar Rajah said the measures announced are supportive of the domestic economy with its focus on improving private investment by attracting higher value-added activities and promoting a productive economy through digital initiatives.
“The introduction of innovative employment schemes such as “Malaysians@Work” will provide employment opportunities for Malaysians and improve their well-being, whilst reducing the dependency on imported labour,” Sukumar said in the same statement.
“We believe this will eventually drive an incremental positive effect on corporates in Malaysia and further translate into improved equity growth in the longer term.
“Nevertheless, external headwinds such as subdued global economic growth, uncertainty over the outcome of US-China trade negotiations and other geopolitical events may continue to weigh on the market in the near-term.”
Sukumar said there may be positive impacts on key sectors such as construction and tourism due to the continuation of stimulus measures and the higher allocation of
Visit Malaysia Year 2020 initiatives.
“The technology sector will also benefit through tax incentives on high value-added activities in Electrical & Electronics and measures to increase adoption of e-wallets.
“Meanwhile, the property sector is expected to gain from measures addressing the oversupply of unsold properties such as lower foreign ownership threshold for high-rise property prices in urban area and the Rent-To-Own (RTO) scheme.
“Separately, the consumer sector is also expected to benefit from the continuation of financial aid and social assistance which is more refined and measured in approach this time targeting specific households.”