KUALA LUMPUR: The FBM KLCI dipped below the 1,700-point level again — the second time for the year — no thanks to persistent selling amid the looming domestic political uncertainty and turmoil in the external environment.

The continued selldown in Bursa Malaysia and the regional bourses is raising investors’ concerns whether a bear market is on the horizon.

Yesterday, the KLCI fell 16.47 points to close at 1,695.83. The benchmark index has declined nearly 9% from this year’s peak of 1,862.80 points on April 21. It has dropped 3.05% since June 3.

However, the fall in the broader market barometer, FBM SmallCap Index, is bigger, indicating the bearish market undertone. It shed 9.89% from the peak of 17,028.53 on April 21, and is down 6.04% since June 3.

Jupiter Securities chief market strategist Benny Lee opined that the KLCI could be on the verge of entering into a bear market as investors’ confidence was shaken by the slew of events developing in the local political scene.

“Technically, the market is still in a correction of a long-term bull trend since 2009. However, negative news in the market far outweighs positive catalysts, and I can’t think of any positive catalysts to support [the] market,” he told The Edge Financial Daily.

According to Lee, the outlook for the KLCI will probably be weak in the third quarter of 2015 (3Q15), with technical support only coming in 4Q15, when the KLCI experiences the usual year-end window dressing.

“I don’t see any bright spots at the moment. However, beneficiaries of the weak ringgit, like the rubber glove makers like Top Glove Corp Bhd and Hartalega Holdings Bhd, will see interest from investors,” he said, adding that this is boosted by the fall in rubber prices in the past week.

Lee also opined that the foreign fund outflow, causing a weaker ringgit, is unlikely to see a reversal soon as the current political turmoil in the country will deter investors from returning to the market.

Regional markets were also in the red of late, dragged down by the debt crisis in Greece, and the panic selling in the Shanghai Stock Exchange that had spilled over to the Hong Kong bourse.

The Hang Seng Index sank 5.84% yesterday to 23,516.56. The Shanghai Composite Index plummeted 5.9% to 3,507.19. South Korea’s Kospi was down 1.18% to 2,016.21, while Japan’s Nikkei 225 declined 3.14% to 19,737.64. Singapore’s Straits Times Index lost 1.67% to 3,284.99.

AmResearch has cut its KLCI 2015 year-end fair value by 12.2% to 1,650 from 1,880, lowering the implied price-earnings to the long-term mean of 15 times.

“A positive reversal of the negative earnings cycle may be delayed to 2016, we believe.

“The market needs to navigate a changing external liquidity landscape and a weaker earnings backdrop, which has yet to demonstrate signs of a bottoming,” said AmResearch managing director Benny Chew in a report yesterday.

According to him, external liquidity conditions may no longer be supportive of the KLCI’s valuations as the market has yet to fully price in an upcycle of the US interest rate.

“Strategy-wise, we believe that there will be a greater premium for earnings certainty, strong corporate management as well as beneficiaries of a weak ringgit in the second half of 2015.

“Sectors and stocks that demonstrate these positive attributes are admittedly crowded plays with high valuations, but the macro uncertainties ahead suggest that it is too early to turn bearish on them,” he pointed out.

“I don’t think we are about to enter into a bear market, but we are nearing the bottom, where value has started to emerge in the stock market.

“The Greek issue is expected to be resolved fairly soon by Sunday. The European economy is improving, and the problems in China are largely due to poor market sentiment,” said another investment strategist , noting that the state of the overall economy remains intact.

He noted that based on consensus year-end targets, there is about a 7.5% upside from the current level. “Next year’s gross domestic product growth is still expected to be positive, which will give sentiment a boost,” the strategist added.

However, the strategist has a differing view as there should not be much of foreign investment money left in the country, after the recent strong outflow that had exerted much pressure on the ringgit, which breached the 3.8 level against the US dollar.

“There is not much left ... in fact, the ringgit should be attractive for them to come back to the market at this level,” he said, adding that foreigners are exiting emerging markets in general and not only Malaysia.

This article first appeared in The Edge Financial Daily, on July 9, 2015.