The Week Ahead: Malaysians wait with bated breath for the tabling of Budget 2020

TheEdge Mon, Oct 07, 2019 11:18am - 4 years View Original


The government will be tabling Budget 2020 on Friday, a welcome distraction for those weary of the US-China trade talks, which resume on Thursday. Trade data from Taiwan and the Philippines this week will also provide a state of play on the global electronics downturn.

The third meeting of the second session of the 14th Parliament sitting will take place for 36 days from Monday until Dec 5. The first week is expected to start with debates on bills and other government affairs.

On Friday at 4pm, Finance Minister Lim Guan Eng will present next year’s national budget in parliament.

Overall, the country’s export-driven economy is holding up well in the face of an accelerating global economic slowdown due to the trade and tech wars.

With steady gross domestic product growth, the finance minister has been quoted as saying that he is confident of achieving the targeted reduction in fiscal deficit to 3.4% of GDP this year from 3.7% in 2018.

A key question, however, is whether these positive trends are sustainable beyond 2020 as the government aims to trim the deficit to under 3% in the near term (2.8% by 2021).

ING Asia economist Prakash Sakpal is of the view that it will be difficult for the economy to continue to outperform as global headwinds are getting stronger and this demands greater policy support.

“Without losing sight of continued fiscal consolidation, the government will need to pursue an expansionary fiscal policy to support growth. It is going to be a challenge,” he says in an Oct 3 report.

FXTM market analyst Han Tan expects the ringgit to react positively to policies that foster domestic demand, considering that recent import data have shown year-on-year contractions for consumption and capital goods for the three consecutive months to August.

On the external front, Chinese and American trade representatives will return to the negotiating table after a breather of more than two months.

Ahead of the next round of US tariffs hikes to 30% (from 25%) on US$250 billion worth of Chinese goods taking effect on Oct 15, the outcome of the US-China ministerial-level trade talks on Thursday and Friday in Washington could well set the tone for risk appetite for the rest of the year.

News headlines highlighting the two sides drawing closer to a trade deal would encourage market sentiment and drive up risk assets in the near term.

While US President Donald Trump sees a “good chance” of a trade deal “sooner than you think”, the news of Chinese companies starting to purchase US agricultural goods this week with a waiver from retaliatory import tariff bodes well for the upcoming talks.

Even so, caution is warranted given the breakdown of earlier negotiations. Trump’s on-and-off rhetoric against China’s trade practices and the US now considering limiting financial flows to China, too, means the risk of yet another round of negotiations ending without an agreement still exists.

Apart from the trade developments, there is little on the Chinese calendar to drive markets after a week of pause in trading for its seven-day National Day holiday from Oct 1.

The Hong Kong and Australian markets are closed on Monday.  Trade reports from Taiwan and the Philippines will be released this week. Electrical and electronic (E&E) parts dominate exports in both countries, accounting for about a third of Taiwan’s total exports and more than half in the Philippines.

The recent pickup in E&E exports from the two countries stems from new smartphone launches. However, the seasonal boost was short-lived as weak economic prospects weighed on consumer confidence and deterred spending on more fancy gadgets.

On the local corporate front, Johor-based homegrown bakery products maker SDS Group Bhd will be listed on the ACE Market of Bursa Malaysia on Monday.

SDS, whose brands include Top Baker and Daily’s, has raised RM23.99 million from its public issue of 104.29 million new shares at 23 sen per share.

Komarkcorp Bhd is holding its annual general meeting on Wednesday. Minority Shareholders Watch Group pointed out that Komarkcorp had obtained a RM1.5 million loan from a credit company as at April 30. The interest rate is comparatively high at 18% per year and the interest cost of the loan was RM105,000 for the financial year ended April 30, 2019 (FY2019).

Shareholders at the AGM may seek an explanation from Komarkcorp’s board of directors as to why the company obtained such a loan instead of seeking bank borrowings that offer lower interest rates.

KESM Industries Bhd and APFT Bhd will convene their AGMs on Thursday, while Plastrade Technology Bhd, Guan Chong Bhd, Merge Energy Bhd and Smile-link Healthcare Global Bhd will be holding extraordinary general meetings.

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