Local Market Strategy
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Market Strategy: Budget 2027 - Wage Reset, Fiscal Path Intact
Sat, 10-Oct-2026 02:31 am
by Nick Foo Mun Pang, To Zheng Hong, Research Team • Apex Research

Budget Highlights

Fiscal Path Intact. Budget 2027 is the fifth MADANI Budget and the second under the 13th Malaysia Plan (13MP), tabled under the theme “Reaching for the Skies, While Anchored on Our Values”. The headline fiscal numbers were broadly in line with our preview. The government targets a narrower fiscal deficit of 3.3% of GDP in 2027, matching our forecast, from a revised 3.6% in 2026E (original target: 3.5%), keeping it on course for 3.0% by 2028. Federal development expenditure (DE) was set at RM83.0bn (+2.5% vs RM81.0bn in 2026E), marginally above our RM82.4bn forecast.

 

The Surprise Is on Wages. The minimum wage will rise to RM2,000 from RM1,700 (+17.6%) from June 2027, the top end of our RM1,800–2,000 range, benefiting more than 4m workers. Micro, Small and Medium Enterprises (MSMEs) with annual sales below RM50m are exempted. A new RM2,500 monthly wage floor for semi-skilled workers and graduates was also announced, while GLICs and GLCs will raise their living-wage benchmark to RM3,400 from RM3,100. This is a direct cost headwind for labour-intensive sectors, mainly plantation and construction, from 2H27.

 

More Handouts, Lower Personal Taxes. The STR/SARA allocation rises to RM16bn (2026: RM15bn), slightly below our RM17bn expectation. SARA is raised to up to RM150 a month for 9m STR recipients, and two RM100 SARA MADANI payments are extended to 13m non-STR adults. More notably, resident individual tax rates are cut by 1ppt to 18% (RM70k–100k) and 24% (RM100k–150k), and individual relief is raised to RM12,000 from RM9,000, its first review since 2010. Together, these add up to RM1,600 of disposable income for c.5m taxpayers, while income above RM1m will be taxed at 30%. One-off payments of RM1,500 to 1.3m civil servants and RM750 to over 1m retirees add a further c.RM2.7bn.

 

No New Broad-Based Taxes. The speech introduced no new broad-based taxes and no carbon-tax start date. No changes to sin taxes or the SST scope were announced in the speech, although we will check the Finance Bill and annexes for details. For businesses, the MSME income tax rate is cut by 1ppt to 14% on the first RM150k and 16% on RM150k–600k. Manufacturers may now reclaim sales tax on locally purchased machinery and selected raw materials, and Accelerated Capital Allowances on local machinery and ICT are extended to 2030. The Reinvestment Allowance is under review.

 

Infrastructure: Continuity, With Contractor Relief. The government agreed to implement the Johor Bahru e-ART, and ECRL Phase 1 is set to begin operations in December. Other allocations include RM3.3bn for Sabah and Sarawak roads, RM5.7bn under MARRIS and RM2.5bn for federal road maintenance. Prasarana will invest over RM3.4bn to overhaul its rail services, and 42 new ETS and KTM Komuter train sets will be procured. The Variation of Price (VOP) clause for diesel and bitumen is reintroduced, and procurement reserved for G1–G4 Bumiputera contractors rises to RM7.5bn (2026: RM4.0bn). There was no update on MRT3 or the Penang LRT CMC2 package.

 

Energy Transition: Grid Yes, Storage Incentive No. TNB will invest RM15bn to strengthen the national grid. UEM Lestra will invest RM1bn, including a storage project at KLIA and a 1GW hybrid energy project in Johor, and a RM1.5bn centralised solar park will be built for government buildings. The Investment Tax Allowance of up to 100% for green technology projects is extended to 2030. However, there was no standalone storage incentive, no mention of SuRIA Home and no detail on the permanent AFA mechanism.

 

Neutral Market Impact. We view Budget 2027 as Neutral for equities. It is fiscally disciplined and supportive of consumption, but the RM2,000 minimum wage is an earnings headwind for labour-intensive sectors that the household measures do not offset at the corporate level. We maintain our end-2026 FBM KLCI target of 1,770 and our barbell strategy. This pairs structural-growth themes (AI, semiconductors, data centres and energy infrastructure) with earnings-resilient domestic names, while avoiding labour-intensive companies with limited pricing power.

 

Sector Highlights. Key beneficiaries are: (i) consumer, from higher cash aid, personal tax cuts and one-off payments concentrated around Aidilfitri and National Day; (ii) property, as first-home stamp-duty relief is extended to homes up to RM750k; (iii) technology, from c.RM3.4bn of Khazanah, KWAP and NIMP-linked capital for semiconductors and other high-value manufacturing; and (iv) power and renewable energy, from TNB's RM15bn grid investment, the extended green ITA and the government solar park. Conversely, plantation and construction face a minimum-wage headwind, partly cushioned by elevated CPO prices and the reintroduced VOP clause respectively.

Sentiment: Neutral
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