Malaysia unveiled an expansionary budget for 2021 with a twin focus on easing the people’s burden and to get the economy back on track, on the back of the profound impact caused by COVID-19.
Despite the challenges, the government is optimistic of a strong rebound in 2021 with GDP growth forecast of 6.5% to 7.5% compared to an expected contraction of 4.5% in 2020, anchored by the anticipated improvement in domestic demand, global growth and international trade.
Here is a summary of our views regarding Malaysia’s Budget 2021:
1. Fiscal Deficit Target
The budget deficit estimate of 6% for 2020 is understandable given the significant headroom that the
government needs for a highly expansionary policy, in view of the dire state of the economy domestically and globally.
The target for a narrower fiscal deficit of 5.4% in 2021, which follows the path towards a lower average of 4.5% in 2021-2023, demonstrates commitment by the government to continue its track of fiscal consolidation and ensure Malaysia’s international rating do not deteriorate going forward.
2. Local Bond Market
In our view, the bond market is going to be volatile with upward yields bias in 2021, with yield curves
expected to rise slightly across the board in a steepening inclination.
Based on the projected fiscal deficit target of 5.4% or RM84.8 billion, and government bonds maturity of RM73.7 billion in 2021, we projected total gross issuance to be around RM160 billion.
3. Sectoral Views
On the bond market front, the low-interest rate environment will continue to entice new and existing
issuers. In Budget 2021, the government has decided to proceed with existing transport infrastructure
projects with an allocation of RM15 billion.
Meanwhile, the property sector is given a slight boost via the full stamp duty exemption on transfer
and loan agreement for first-time home buyers. Our view is that though this will provide a modest
relief for the affordable home segment, it is insufficient to resolve the existing property overhang issue
in the high-end segment.
Property issuers in the bond market are mainly big property players and we believe bond investors will continue to underweight this sector. On banking, the lack of automatic moratorium is positive for the sector as the targeted relief on loans is only given to low income borrowers which will have limited impact on the bottom line of banks.
In the past few years, corporate issuers tapping the sukuk market has surpassed conventional issuers
in a variety of sectors and we believe this trend will persist in the coming years. As at end September
2020, the outstanding corporate sukuk market comprised RM377 billion compared to RM146 billion in
conventional bond.
4. Impact on Equity Market Scene
Measures from the PRIHATIN and PENJANA stimulus initiatives are further refined and broadened to
address the COVID-19 impact to the most vulnerable groups, with a focus on aiding disposable income, preserving employment and safeguarding business continuity.
Written by Hanifah Hashim, Chief Executive Officer/Head Malaysia Fixed Income & Sukuk and Sukumar Rajah, Senior Managing Director, Director of Portfolio Management
Read more: Markets Overview (9/11)
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