One of the first few announcements made by our 7th Prime Minister was the formation of a Council of Eminent Persons (CEP) tasked to advise the new Pakatan Harapan (PH) government on matters pertaining to economic and financial matters during the transition of power period.  In a briefing held by CEP with the investment community yesterday, the CEP shared their 100-day plan focusing on fiscal reforms and the B40 segment.

Read on as Macquarie Equities Research (MQ Research) summarises the key takeaways from the CEP briefing.

Event

Among key messages from Tan Sri Zeti are:

1. fiscal reform (guided to be ready on the early side of the 100 days given the CEP to complete its tasks) will be via a comprehensive review that covers cost savings, revenue generation and efficiency (the latter including reprioritizing mega-projects), with the underlying policy objective being to raise purchasing power, especially for the B40 low-income segment; and
2. 1MDB is being re-investigated by a dedicated task force which will look to establish accountability, and recover monies. In sum, this first engagement with the CEP should have a soothing effect on markets, especially given consultations with debt rating agencies concerning issues like GST elimination, honouring of debt obligations and a 1MDB resolution.

Impact

• The CEP is moving fast! It was articulated by Tun Daim that just 5 days into the formation of the council, it has already engaged with GLCs (government-linked companies), GLICs (government-linked investment cos.), institutions such as Bank Negara and Customs, as well as domestic and foreign ratings agencies and key workers unions such as MTUC and CUEPACS. The focus this week will be engaging bankers, 1MDB, FELDA and mega-project reviews.

• Comprehensive fiscal review in the works: it was made clear the new fiscal regime when announced would be a complete (not piecemeal) reform covering cost savings (principally via addressing wastage and leakages in the public sector), revenue generation (no specifics but we flag the risk of levies on the corporate sector re mobile telcos and sin stocks) and efficiency, the latter to include re-prioritising/staggering of mega-projects (as happened in the 90s) – collectively, these savings and revenue boosts are to mitigate GST elimination.

• B40 focus noted: the sum of GST elimination, reinstatement of limited fuel subsidies and planned reduction in wage-suppressing foreign labour means a significant boosting of consumption capacity for the low-income i.e. the broad consumer sector is a key beneficiary e.g. MyNews, BAT, AEON Credit, Padini.

Outlook

As anticipated in MQ Research’s strategy updates, the equity market’s first trading day post-GE14 saw a sell-down in politically sensitive stocks (CIMB, MyEG) and sectors (construction), while banks, consumer, exporters and defensives were well-supported, with domestic funds prominent buyers. While MQ Research continues to favour a defensive posture through the first 100 days transition period of the new administration, the CEP’s reiteration of fiscal responsibility and emphasis on governance and accountability should be supportive of investor confidence and bargain-hunting, stock ideas for the latter articulated.

Source: Macquarie Research - 16 May 2018