KUALA LUMPUR: Consumer spending power will be more subdued in 2023 amid a rising inflationary environment and an interest rate hike cycle, CGS-CIMB Research said.
The research firm said the latest Malaysian Institute of Economic Research (MIER) Consumer Sentiment Index (CSI) remaining below the optimistic level of 100 points since the third quarter (Q3) of 2022 also suggests softening consumer sentiment, which could extend into 2023.
"We also see potentially large allocations in the upcoming Budget 2023 (to be tabled on February 24) in terms of subsidies provided, including direct cash handouts, special assistance payments, and personal income tax cuts, as well as minimum wage hikes to partially alleviate the rising cost of living and support spending towards daily essentials," it said in a note today.
CGS-CIMB Research expects the reopening of China's economy and international borders from January 2023 onward to bode well for consumer names under its coverage, including QL Resources Bhd, Power Root Bhd and Kawan Food Bhd, given their exposure to China's domestic market.
"The expected gradual return of foreign tourists in 2023, especially Chinese tourists, is set to have positive spillover effects on companies in Malaysia with overseas exposure, such as Fraser & Neave Holdings Bhd (F&N), Bonia Corp Bhd and InNature Bhd, and convenience store operators, in our view.
"We estimate that foreign tourists made up five to 10 per cent of their total annual sales on average pre-Covid-19," it added.
CGS-CIMB Research has retained its 'Neutral' call on the overall consumer sector.
"While we expect input costs to ease in 2023, the impact should be offset by rising operating costs and weaker consumer spending power.
"However, we believe the current overall sector valuation (trading near its five-year mean) largely prices in the weakening consumer sentiment and earnings prospects," it said.