NGU CHIE KIENG
TA Securities Sdn Bhd
head of research
THERE is very little direct correlation between the national budget and stock market's performance.
Our study of the market's performance in the month post-budget showed that the local bourse experienced declines in three of the last five years and gained only in 1998 and 2001.
These two occasions were arguably aided by the market uptrend rather than specific measures contained in the budget.
Taking the cue from the historical performance, the focus of the budget should not be on prodding up the market.
Just like it is hard to continuously beat the market in contra- trading, it is difficult to sustain the market using short-term measures.
However, this does not mean that the budget should ignore its impact on the market.
Conversely, every effort should be made to ensure that the measures are positive for the country in the long run. What is good for the country is likely to be good for the market.
On this note, it is right for the government to continue pursuing measures that seek to revitalise the private sector.
Since 1997, counter cyclical measures taken by the government have caused an accumulated budget deficit of about RM85bil.
Given the improved macro- economic picture, the burden of growth should rightly be passed back to the private sector.
On measures to strengthen the private sector, the government should be lauded for taking specific measures aimed at addressing the issue.
The lowering of corporate tax for small- and medium-sized enterprises (SMEs) – instead of a blanket cut in corporate tax – in the Budget 2003 and the creation of the micro-credit scheme for small businessmen in the stimulus package are some of the examples.
But more fine-tuning can be done to make the SMEs more competitive.
The current limit of RM100,000 for favourable tax rate of 20%, for example, is too low.
The government should also consider introducing rebates for domestic tourism to spur domestic spending activities.
A rebate of say RM300 per household is likely to see good take-up rates, hence high multiplier effects.
This rebate could also help to strengthen the domestic tourism industry which, in turn, will draw in foreign tourist revenue.
Besides, this will promote closer family ties and a healthier workforce.
As for the market, a potential catalyst is the foreign funds inflow.
In this regard, specific details on the matching funds programme that was mooted earlier could help attract new inflows into the market.