Malaysia Budget 2027: Key sector winners and laggards amid wage hikes

[KUALA LUMPUR] Budget 2027 promises to put more money into Malaysians’ pockets, but investors weighing the country’s stock market face a harder question: how much of that spending will reach corporate profits as wage costs rise?

Analysts highlight selective opportunities in consumer, property and energy infrastructure stocks, whereas plantations, labour-intensive manufacturing, and tech firms face margin pressure from higher payrolls.

For regional investors, this favours a selective approach to Malaysian equities. The Budget strengthens domestic demand and investment themes, but analysts see limited grounds for a market-wide re-rating.

The spending support operates within tight fiscal constraints. Fitch Ratings noted on Oct 13 that the Budget maintains Malaysia’s gradual consolidation, targeting a deficit reduction to 3.3 per cent of gross domestic product in 2027 from 3.6 per cent this year.

However, persistent subsidy costs and social spending could slow progress ahead of the next general election.

Fitch projects 2027 GDP growth at 4.5 per cent (below the government’s 5 per cent target), warning that fiscal success hinges on revenue collection and subsidy reform.

Minimum wage hike supports spending

Budget 2027 underpins Malaysia’s spending outlook through higher cash assistance, tax relief, and a minimum wage hike to RM2,000 (US$490) in June 2027 (except for micro, small and medium enterprises with under RM50 million in annual sales).

Peter Kong, head of research at Kenanga Investment Bank, sees private consumption as the main beneficiary, particularly given the absence of new large infrastructure projects.

Kenanga estimates the Budget could generate RM25.2 billion in additional spending capacity, equivalent to 2.1 per cent of private consumption.

It expects household support to outweigh wage pressure for consumer companies under its coverage.

CGS International Securities Malaysia head of research Prem Jearajasingam similarly identifies consumer discretionary businesses as the clear winner.

But analysts differ on how best to capture the spending recovery.

Maybank Investment Bank group chief economist Suhaimi Ilias and head of equity research Lim Sue Lin favour consumer staples.

They expect stronger purchasing power to lift revenues but warn that higher labour costs could compress margins.

CGS also said flags convenience store operators are vulnerable to wage pressure. The differing assessments suggest stronger consumption alone is insufficient: staffing costs and pricing power will influence how much reaches profits.

Winners: Utilities, tech, renewables and property

UOB Kay Hian head of research Desmond Chong describes the consumer spending boost as marginal, adding that utilities, renewable energy (RE), property and construction are clearer beneficiaries.

Tenaga Nasional’s RM15 billion grid investment, alongside water infrastructure, rail rehabilitation and public facility upgrades, should support orders for contractors and equipment suppliers, he added.

Maybank highlights targeted opportunities in electrical engineering and water works, while the Corporate Renewable Energy Supply Scheme acceleration package will ease financing and speed up RE development.

In real estate, expanding stamp duty exemptions for first-time buyers broadens support beyond affordable housing, a move favoured by Kenanga’s Kong.

Additionally, CGS expects sustained development in the Johor-Singapore Special Economic Zone and Malaysia Vision Valley 2.0 to lift industrial property developers.

Technology presents a more divided picture.

OCBC senior Asean economist Lavanya Venkateswaran points to extended accelerated capital allowances and semiconductor support as evidence of the government’s commitment to productivity and higher-value investment.

However, cost impacts across the tech value chain remain mixed. UOB Kay Hian cautions that rising wages will disproportionately weigh on labour-intensive electronics manufacturing services, while outsourced semiconductor assembly and testing, and equipment suppliers should face milder headwinds.

While expansion in chip design, advanced packaging and AI creates long-term opportunities in automation and cloud infrastructure, UOB Kay Hian emphasises that funding deployment, commercial viability, and procurement timelines will determine how quickly these initiatives translate into corporate earnings.

Finance ministry official Rozita Abd Matalib, at Malaysian Rating Corporation Berhad’s post-Budget webinar, noted that high-growth investments must generate stronger linkages with domestic businesses and increase local value added.

Labour-intensive sectors under pressure

Plantations are among the hardest hit by rising labour costs. In response to the higher minimum wage, Kenanga trimmed target prices for plantation stocks under its coverage by 1 to 5 per cent.

The plastic packaging and glove sectors face similar cost pressures. Kenanga expects the wage hike to cut net profits for plastic packagers by 5 to 10 per cent on average.

For rubber glove makers, Kenanga and CGS note that passing on cost increases through higher selling prices will be essential to protect margins.

Meanwhile, banks offer indirect exposure to improving household finances.

Moomoo Malaysia strategist Yu Junqiang highlights housing guarantees and small-business financing as net positives, while CGS expects rising incomes to drive loan demand and lower credit costs. Overall, Maybank views the Budget’s impact on banking as neutral.

Market volatility

The broader investment backdrop remains challenging. UOB Kay Hian’s Chong expects ongoing market volatility driven by elevated oil prices, geopolitical tensions, and persistent upward pressure on global interest rates.

Beyond equities, AHAM Capital chief fixed income officer Esther Teo sees selective opportunities for fixed-income investors, though she cautions that market turbulence is far from over.

“If you are a long-term investor in bonds, this is a good time to slowly enter the (global bond) market. Having said that, I don’t think we are out of the woods yet,” she added.

Against this backdrop, UOB Kay Hian recommends defensive large-cap domestic counters with steady cash flows and earnings, alongside selective mid-cap growth plays featuring strong fundamentals and catalysts.

The research house maintains a year-end FBM KLCI target of 1,760, pegged to 15.6 times forecast 2026 earnings – half a standard deviation below its historical valuation mean. 

Bursa Malaysia FBM KLCI traded at 1,607.76 on Friday, representing a year-to-date drop of nearly 4.3 per cent.

Meanwhile, Maybank and Kenanga retain year-end targets of 1,750 and 1,700, respectively.