Malaysia's 2022 Budget is the largest ever to date having nearly 3% more than the RM322.5 billion announced for Budget 2021. The government announced a RM332.1 billion expansionary budget for 2022, with the deficit to gross domestic product (GDP) expected to fall to 6% from 6.5%.
Presented by Tengku Datuk Seri Zafrul Abdul Aziz in the Dewan Rakyat in his second term as Finance Minister, the national Budget comprises RM233.5 billion in operating expenditure, RM75.6 billion in development expenditure and RM23 billion for the Covid-19 fund. Another RM2 billion is allocated for contingencies.
The new national budget, themed 'Keluarga Malaysia, Makmur Sejahtera', is seen as one that is committed to driving inclusive and sustainable growth to strengthen the country's economic resilience following the Covid-19 pandemic, while rebuilding market confidence.
Amongst others, cash aid under the renamed Keluarga Malaysia Aid is increased to RM8.2 billion for 9.6 million recipients, from RM7 billion in 2021, being part of a sum of RM31 billion in subsidies, assistance and incentives for the year.
The government also announced that the Employees Provident Fund (EPF) will extend the period to reduce the EPF minimum contribution rate from 11% to 9% until June 2022, as to increase money in the hands of the people.
In addition, the government is allocating RM2 billion in hiring incentive under JanaKerja for those who have been out of work, comprises an incentive of 20% of the employee's salary in the first six months, and 30% of salary in the next six months - covering those with monthly salary above RM1,500.
Another RM1.1 billion is allocated for training and upskilling programs, including a place and training with job placement attached. These are part of the RM4.8 billion allocated for JanaKerja, targeting to secure employment for 600,000 people.
As such in Principal's point of view, we are positive from the standpoint of Malaysia's economic recovery given the targeted support and assistance through cash handouts, lower EPF contribution, tax incentives and unemployment support and job creation which should spur private consumption.
We also foresee the clear beneficiaries from Budget 2022 are consumer and automotive players, given the initiatives to boost disposal incomes and tax incentives. Telcos and digital payment companies would also benefit from the push towards a digital economy.
Reopening stocks to look out for on recovery theme play ahead
The introduction of the one-off Prosperity Tax (Cukai Makmur) has been the talk of the town since it was announced in Budget 2022. This one-off additional company income tax, involves companies with chargeable income up to the first RM100 million to be subjected to income tax at a rate of 24% while the remaining chargeable income will be subject to income tax at the rate of 33% for the year of assessment 2022 .
We continue to be selective on stocks from a bottom-up basis that plays into the reopening theme and thus remain constructive on sectors such as financial, in addition to cyclical themes such as consumer discretionary and selected transport.
We also continue to be overweight on selective technology companies while underweight for gloves given their earnings prospects and environmental, social and governance (ESG) issues, whilst turning neutral on plantation as the major companies seek to address their ESG concerns with valuations have been factored into such concerns.
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