KUALA LUMPUR (Oct 22): Malaysia's fiscal prudence, as guided in the recently announced Budget 2025, will bode well for the sustainability of the country's economic development moving forward, said a fund manager from British asset manager Schroders plc.

Jason Yu, Schroders' Asia head of multi asset and fixed income management, said the government's focus on governance reforms is also expected to lead to better overall economic performance, citing as examples successful reform efforts in Japan, South Korea and China.

The Malaysian government has kept development expenditure at RM86 billion under its Budget 2025, as it eyes a fiscal deficit-to-GDP of 3.8% for the year, with the 2025-2027 average seen at 3.5%. In tabling the budget, Prime Minister Datuk Seri Anwar Ibrahim also announced new revenue measures such as the 2% tax on dividend income of RM100,000 and above, as well as plans to further rationalise spending, including the targeted RON95 blanket subsidy rationalisation by mid-2025 seen to slash subsidy bills by RM8 billion per year.

Federal government debt growth is expected to slow to 6% in 2025, from 7.4% in 2024 and 8.6% in 2023, according to the latest estimates from the Ministry of Finance.

"It seems that there will be more focus going forward on artificial intelligence (AI) technology development as well, which we believe will sustain or continue to shift [the economy] from a very natural resources-orientated economy to the next phase of sustainable development," Yu said during a market outlook presentation on Tuesday.

Among AI-focused measures that were announced under Budget 2025 were special tax deductions for private universities and skills training institutes that develop new courses, such as AI, robotics, the Internet of Things (IoT), data sciences, fintech and sustainable technology. It set aside an increased RM50 million allocation to expand AI-related education to all research universities, compared to RM20 million previously, and increased the funding for research and development to RM600 million, up from RM510 million previously.

Tax incentives were also given for automation in the manufacturing, services, agriculture and commodities sectors, which include allowances and tax exemptions on capital expenditures for the adoption of technologies such as AI and drones that reduce reliance on foreign labour.

"So, we think it is overall positive from the governance point of view. Apparently it’s a trend [in Asia], and Malaysia is doing well. Hopefully we can see more advanced AI technology development going forward," Yu added.

In his presentation, Yu also cited how governance reforms in Japan have made Japanese equities more attractive to international investors and fund managers. Similar effects, he added, could also be seen in South Korea with its 'Corporate Value-Up Programme', as well as in China with its new 'Nine Measures' that aim to encourage listed companies to increase dividends and enhance their investment value.

Earlier, RHB Asset Management Sdn Bhd, the fund management arm of RHB Bank Bhd (KL:RHBBANK), relaunched its RHB Asian Income Funds — comprising RHB Asian Income Fund, RHB Asian Income Fund-SGD, and RHB Asian Income Fund - Multi Currencies — with a broadened investment scope that spans global and alternative assets, in addition to Asian multi-asset investments.

The fund, which feeds into the Schroder Asian Income Fund managed by Schroders Singapore, now has a higher income distribution target of 6% to 6.5% per annum, compared with 4% to 4.5% per annum previously, and a more flexible income distribution policy, allowing for monthly income distribution.

"This is made possible from the higher income distribution from the target fund, the Schroders Asian Income Fund," said RHB group wholesale banking managing director Datuk Fad'l Mohamed.

"Besides, the fund also benefits from the Asia+ investment strategy, the ability to invest outside of Asia to generate additional returns. This includes exposure to alternative asset classes that provide diversification and yield enhancement," he added.

RHB Asset Management managing director and chief executive officer Ng Chze How also confirmed that investors in the fund will be exempted from the 2% tax on annual dividend income worth more than RM100,000, as recently announced in Budget 2025.

According to its September 2024 fund factsheet, the RHB Asian Income Funds has 30.4% exposure to the financial sector, the largest as a proportion of net asset value (NAV), followed by technology (12.3%), consumer discretionary (12.3%) and utilities (8.1%).

In terms of countries, 18.1% of the fund's NAV is allocated to China, followed by India (13.5%), Australia (11.5%), and Hong Kong (10.7%).

Its top five holdings as of Aug 31 are Taiwan Semiconductor Manufacturing Co Ltd (4% of NAV), MediaTek Inc (1.7%), BHP Group Ltd (1.4%), Hon Hai Precision Industry Co Ltd (1.2%), and NTPC Ltd (1.2%).