KUALA LUMPUR • Malaysia's government spending could revive gains in the stock market that is South-east Asia's worst performer despite receiving the most foreign investment in the region.
Next year's Budget, to be released on Oct 27, is likely to include an increase in cash handouts and infrastructure spending that will filter through to consumption stocks, builders and construction material suppliers, said Mr Rudie Chan, chief investment officer at Eastspring Investments in Kuala Lumpur.
Prime Minister Najib Razak has said the Budget will address the cost of living for citizens and also housing issues, according to the official Bernama news agency.
Mr Chan noted: "The Budget is going to be expansionary, there's no question about it. It's going to be an election Budget essentially."
Datuk Seri Najib's spending plan, which will be the final one announced before a national election that must be called by mid-next year, could help spur gains beyond technology companies that have been the best stock performers this year.
While Malaysia has received RM9.5 billion (S$3 billion) in foreign investment since the start of January as its economy grew at the fastest pace since 2015, the FTSE Bursa Malaysia KLCI Index has only added 6.9 per cent, lagging behind the 23 per cent gain by the MSCI Asia Pacific Index.
Even as gains on the KLCI index of 30 companies lagged behind regional peers, technology-related shares not tracked by the benchmark have fared better.
The Bursa Malaysia Technology Index, the best-performing industry gauge out of 10, has jumped 77 per cent this year and closed at a 12-year high last Friday, driven by the global demand for electronic products that are fed into the global technology supply chain from the country.
Property developers could benefit from the upcoming Budget, as Mr Najib is set to address the lack of affordable housing, according to a report by Ms Ivy Ng Lee Fang and Ms Michelle Chia from CIMB Group.
Mr Geoffrey Ng of Fortress Capital Asset Management said: "This would be an election Budget that would pull out all the stops, I suppose, in terms of ensuring that the rakyat is shielded to a certain extent from the higher cost of living." He was using the Malay term for the citizenry.
The budget would likely give a boost to lower-income-related consumption stocks and Fortress is trading selected construction and property-related companies, he added.
Yet, even with a potential boost from the Budget, Malaysia is less attractive than its peers, said Mr Ng, who is underweight on the nation. Hong Kong and, to a certain extent, Singapore are more liquid and have cheaper valuations, he said.
For Eastspring, trends in consumer spending will determine how the stock market performs.
Investors should watch out for any gains in expenditure on products ranging from cars to basic staples, as government initiatives become the market's next big driver for the following couple of quarters, Mr Chan said.
Malaysia's consumer spending surged 7.1 per cent in the second quarter from a year earlier, rising at the fastest pace in more than two years. Clothing retailer Padini Holdings has surged 88 per cent this year, as profit for the financial year ended June rose 15 per cent to RM157.4 million. "You really have to dive deep and research on companies that are still undervalued and underappreciated," Mr Chan said. "The market is basically a stock pickers' market."