The recent announcement of the Budget 2014 was unexcited as predicted. Compared to the last Budget this budget is more realistic as we need to look into our deficit problem seriously as Fitch has already downgraded the Malaysian credit outook from "stable" to "negative" in July this year.
Currently, Federal Government debt at 54% of GDP while Household debt at 83% of GDP; Our budget deficit was 4.5% of GDP this year (for budget deficit > 5% is consider unhealthy). Hence a contractionary budget for next year is expected as people need to wake up from the over-indulgence of 'goodies' during the pre-election period. There is a price to pay for all the big spending!
However, the GST is further delayed to 2015 which also mean that the budget in fact is not that contractionary and our credit rating of 'negative' may remained for quite a while.
Moving forward, as far as KLCI is concerned there are winners and losers sectors for this budget. The winners are: telecommunication (increase of internet coverage in the rural areas), Oil and Gas, and Construction (West Coast Expressway, Doble-tracking rail project).
Biggest loser is the property sector especially the properties that rely on foreign buyers like the Iskandar region in Johor. As for the sin tax, the price hike in tobacco was implemented one month before the budget announcement day with a tobacco excise tax of 14%.
The new RPGT of 30% for the first 3 years with no DIBS will definitely dampen the property market. However, I don't think there will be a major crash in the property market, but more like a mild correction kind of consolidation will take place as many of the projects will only be ready beyond 2015.
For example, if you are holding 3 or more condos with price below RM1 million, you'll most likely have the difficulty to look for local buyers as most Malaysian middle income earners can't afford to buy a property in the sub sales market. The difference between buying from the developers and from the sub-sales market is that, if you buy from the developers, very often you do not need to pay high down payment, low (or non) legal fees, DIBS (now no more), easy to obtain the loan approval from banks. But if you are buying in the secondary market you need to pay tens of thousands of ringgit for the legal fees, stamp duties, down payment and etc. Hence, this new ruling in fact is a nightmare for speculators with no holding power but a good news for genuine buyers because it's everyone's dream to own a house for old age retirement and for the next generation.
Now you may be thinking what is my advice for the general equity investor. My advice is keep investing in the equity market. Buy only when the KLCI has a minimum correction of 80 points - 120 points. Sell when you see your stocks rise by 20% - 30%. Once you've sold your position do not buy immediately but to wait patiently for the next opportunity to strike. If you recall my previous articles, there were 2 strategies that I mentioned before:
1. Buy at the cycle low that usually happens in the month of February, May, August and November.
2. Buy when the KLCI is in a correction mode. A correction happens when the KLCI violated the trendline and the 20 day MA. When the index is in the correction mode, individual counters usually reacted more.
For sell signals it is up to the individual investor, it could be a 3-to-1 reward to risk ratio, below 20 day MA, or any other technical indicators that you are familiar with.
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