(Oct 15): Malaysia’s consumer and construction stocks are set to benefit, as the government seeks to boost wages and sustain economic growth with its spending plan for next year. 

Prime Minister Datuk Seri Anwar Ibrahim, who doubles as the finance minister, will likely deliver measures to lower the cost of living and several infrastructure projects when he unveils the country’s budget on Friday. Analysts also expect details of plans to remove blanket fuel subsidies and potentially new levies, including a sugar-sweetened beverage tax, to fund an expansionary budget after the prime minister ruled out any near-term re-implementation of the goods and services tax.

Further fiscal and policy reforms will be crucial to lift investor confidence and draw more investments into the country’s new growth drivers. That will bode well for the ringgit, which has weakened about 4% this month, and local stocks. 

“The government has clearly surprised on the upside by delivering growth in Malaysia, and that has really come from stepping up infrastructure, the growth in data centres, moving towards renewables and the green economy,” said Kenneth Tang, a senior portfolio manager at Nikko Asset Management Asia. “We hope for more in the budget to support that growth and to also facilitate continued investments in that arena.”

Here’s what to watch for in the Budget 2025 announcement:

Targeted cash transfers and tax reliefs are poised to increase as the government looks to mitigate the impact of rising prices on the lower income group. Anwar’s speech may also offer more details of civil servants’ salary hikes and a potential revision in the minimum wage as part of efforts to raise disposable incomes. That should benefit retailers including AEON Co (M) Bhd (KL:AEON) and Padini Holdings Bhd (KL:PADINI). 

Any delay in removing fuel subsidies may also boost consumer stocks, said Imran Yusof, the head of research at MIDF Amanah Investment Bank Bhd. 

Budget 2025 is set to include new project proposals and extensions such as the much-anticipated Mass Rapid Transit Line 3 as well as the Pan Borneo Highway, according to CIMB Securities analysts including Michelle Chia. This should support companies including Gamuda Bhd (KL:GAMUDA), Sunway Construction Group Bhd (KL:SUNCON) and IJM Corp Bhd (KL:IJM). Any details of the Johor-Singapore High-Speed Rail and progress on a cross-border economic zone may also reignite interest in the sector.

The government may follow up its commitment to growing the semiconductor industry with more support measures and related infrastructure development, which would benefit data centre developers including YTL Power International Bhd (KL:YTLPOWR), and technology firms such as Inari Amertron Bhd (KL:INARI) and Unisem (M) Bhd (KL:UNISEM), according to analysts.

A likely focus to aid homeownership would positively impact almost all property developers, UOB Kay Hian analysts including Vincent Khoo wrote in a report this month. Builders with large exposure to first-time homebuyers and affordable houses like Lagenda Properties Bhd (KL:LAGENDA) and Mah Sing Group Bhd (KL:MAHSING) will be key beneficiaries, amid expectations for more initiatives to help the low- to middle-income groups with improved financing schemes and stamp duty exemption.

Traders will be looking for cues in the budget that may help set up a rebound in the ringgit after a months-long rally in the currency halted in October. The focus will be on whether the government can maintain strong growth amid plans to remove some petrol subsidies, which may lift consumer prices and keep the central bank on hold into 2025.

The budget’s impact on government bonds is likely to be more limited, as the fiscal deficit ratio is expected to fall to 3.9% in 2025 from a projected 4.3% this year, according to Maybank. 

“While it is encouraging that the deficit ratio continues to fall gradually, the pace of consolidation has slowed, and the deficit amount will only be trimmed modestly versus Budget 2024,” said Winson Phoon, the head of fixed income research at Maybank Securities Pte Ltd. As such, the reduction in net bond issuance “is probably going to be marginal”, he said.

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