Wednesday, October 13, 2010

Budget 2011 Is Critical For The Market

Deutsche Bank said three key themes should emerge during the tabling of Friday’s Budget 2011, that will likely reignite interest in the market.
First, measures to expedite the Economic Transformation Program (ETP) and in particular, emphasis on driving the 12 NKEAs (National Key Economic Areas)
“Special emphasis, we believe, might be placed on a) fast-tracking mega projects such as the Greater KL MRT, b) supporting tourism, c) improving market dynamics (e.g Govt stake sales to improve market free float) and d) driving education initiatives,” said Deutsche.
On taxes, the research house envisage incentives to encourage private sector participation in the 12 NKEAs. In addition, clarity on the implementation of the goods and services tax is likely, as well as the possibility of individual tax cuts given the Government’s emphasis on attracting and retaining talent.
Thirdly, the Government may introduce loan to valuation ‘caps’ on an individuals’ third mortgage. “There does not appear to be a property bubble but due to a proliferation of minimal down payment schemes promoted jointly by developers and banks, the Government may be keen to instill greater prudence,” said Deutsche.
Meanwhile, the biggest criticism on the Government is the lack of follow through on major initiatives. This view is slowly changing.
Subsidies are being rationalised, more meaningful initial public offerings are underway, the Ringgit is at a 13 year high and infra projects are underway.
“But much more needs to be done to truly convince the market that Malaysia’s very own structural evolution ‘story’ is well underway,”
“Market valuations, at 14.3 times price earnings ratio 2011 and 3.7% dividend yield, should not be viewed as excessive when earnings growth of 17.1% and return on equity at 16% are taken into account too,” said Deutsche.

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