Mini-budget : Size does not matter

Mini-budget : Size does not matter

KLCI stuck in downtrend

The government will announce their second stimulus package which is otherwise known as the Mini Budget today. Govt announces minimum RM10bn for Mar 10 mini-budget

Basically, our govt is promising at least RM10bn for the 2nd stimulus package (Mini Budget). Economists polled had expected RM10-15bn for the mini-budget. The total expected stimulus of RM17bn (1st Stimulus Package + Mini Budget Stimulus Package) represents 2.6% of Msia GDP.

Big or small, KLCI will still be downward trending
Regardless of the size of the mini budget, the KLCI’s outlook will still be downward trending. If the Mini Budget is larger than expectations (>RM15 Billion), investors might be concerned that an overly high budget deficit might trigger a downgrade in the sovereign ratings of the country. Traders also generally will be “selling on news” after the announcement of the budget which will exert a downward force on the KLCI.

If the Mini Budget is smaller than expectations (>RM15 Billion), investors would be selling down construction stocks due to the disappointing budget size and exerting a downward force on the KLCI as well.

Strategy : KLCI downward trending
We maintain our negative view of the KLCI and think that the KLCI will be paying a visit to the support level of 835 soon. The KLCI’s only hope of thwarting the bulls would be if the bottoming out of the US markets. Currently the US’ Dow Jones is still looking for a bottom and is heading towards the 1997 April low of 6,391.