Budget 2019: Economic Highlights and Un-Budgeted Items?

From the recently announced Budget 2019 themed as 'Malaysia Wibawa, Ekonomi Dinamik, Rakyat Sejahtera', it will have 3 focus areas, and 12 main strategies to put the country back as an "Asian Tiger" again (hopefully), as what we enjoyed during 1990s until the Asian financial crisis.

Below is the 3 focus areas:

• 1st : Implement institutional reforms
• 2nd : Ensure people's well-being
• 3rd : Nurture a culture of entrepreneurship

The very first budget announcement from the new government after 60 years of independence caught the eyes of the world, especially economists, to gauge the thinking of the new ruling coalition's future policies. Well, it was considered as an expansionary budget, although facing fiscal constraint, partly due to 1MDB scandal.

Economic Highlights from Budget 2019:

1. Government real debt and liabilities as at end-June 2018 stood at RM1.065 trillion, which is RM350 billion more than the official sum revealed by the previous government
2. Forecasts 2018 GDP growth at 4.8%
3. Forecasts 2019 GDP growth at 4.9%
4. Debt for 2019 expected to reach 51.8% of GDP
5. Total liability in 2019 expected to declines to 73.5%
6. Budget deficit for 2018 revised to 3.7% vs 2.8% previously (after taking into the 'real' debt figures)
7. However, the fiscal deficit is projected to narrow to 3.4% of GDP in 2019

Huh? What is the so called "un-budgeted items" by previous goverment?

According to the Budget 2019 speech, the increase in fiscal deficit arises after taking into account previously un-budgeted items such as below:

• RM1.0bn interest servicing cost for 1MDB debts,
• RM1.3bn in compensation for the acquisition of Eastern Dispersal Link in Johor which was announced last year,
• RM1.0bn for Prasarana,
• RM1.4bn for Ministry of Transport rail projects, and
• paying back some GST refunds of RM3.9bn.
  

Well, well, well... It's good that the new government is transparent about our financial health. However, this would not be good in the eyes of rating agencies, which may potentially downgrading our credit rating later. What do you think?

"Although the 2018-2019 budget deficits were adjusted higher – derailing theoriginal course of fiscal consolidation – we are confident that international ratingagencies will look past this as a one-off event." ~ RHB Research

"Over the medium term, the deficit is seen reducing to the region of 2%, though the government did not mention the exact time period. As such, we do not foresee any changes in Malaysia’s sovereign credit rating." ~ TA Securities

Below is the info-pictures designed by Finance Malaysia team to highlights some of the key announcements:

Next we will blog about the possible winners and losers for share investors. Stay tuned !!!

Why M-REITs are suffering now ??? (March 2018)

Real estate investment trusts (REITs) has been the favorite for those investors seeking stable yet attractive yield. Instead of putting money in bank's fixed deposit, many of us would rather be investing the money into REITs.

CMMT suffers the most YTD with around 30% price drops.

However, things turn worse recently (especially since the beginning of 2018) due to a few reasons. Prices of REITs suffers and no longer considered 'stable' anymore, thus pushing the dividend yield abit higher now.

Dividend yield higher seems to be more attractive ???

First of all, we must understand that higher yield doesn't necessarily mean it's good. It could be due to falling prices of the stocks, and not higher income receives. And, the current yield is based on the past one-year dividends payout over current market price. Whether or not the dividends could be sustainable is a concerned to investors.

And, why all M-REITs are suffering now ???

1. Oversupply issue
   Property market already stagnant (if not decline) since 2016 until now. The oversupply of office spaces and shopping malls exacerbated further, especially in Klang Valley. Retailers were suffering from the impact of e-commerce which change the patterns of people spend money nowadays, moving from visiting malls. Food and beverages operators also facing stiff competition amid falling footfalls in malls.
   
   
   Over-supply spaces plus under-demand from consumers resulting in difficulties faced by REITs managers to optimize the spaces they're having now. If they could maintained their current tenants with current rental rates, it considered a blessing already.
   
   
2. Rising interest rate environment
   In January, Bank Negara Malaysia (BNM) started to raised the OPR by 25 basis points, for the first time in 4 years. Every rate hike could dampen the dividend payout to investors because of higher interest charges for loan servicing. Jan is the first hike only, and BNM already guided us that there could be total 2 or 3 hikes this year. Lower income means lower dividends/distributions, and this will make REITs not attractive anymore. 

One new good thing...

Effective 9 April 2018, M-REITs have given the flexibility to indulge themselves into property development. The changes was announced by Securities Commission (SC) recently and under the revised guidelines, REITs can undertake property development activities such as buying vacant land and developing the land, up to 15% of the REIT's total asset value.

Hopefully, M-REITs could ride out from this 'business climate' change.

Happy investing!