KUALA LUMPUR: The FBM KLCI plunged below 1,700 points yesterday on concerns weak crude oil prices would erode the country’s fiscal position, coupled with a correction on Wall Street last Friday, according to analysts and fund managers.

The fall on Bursa Malaysia was in line with the widespread decline in key regional markets. The benchmark index fell 35.68 points or 2.06% to 1,697.31 points — the lowest closing since August last year.

Compared with its peak of 1,892.65 in early July, the KLCI has lost 10.3%.

On the broader market, a loser versus gainer ratio of 1,010 to 66 counters seemed to signal a bearish outlook.

The fall in small-cap stocks was sharper yesterday. The FBM Small Cap index plunged 752.31 points or 5.09% to 14,024.96 points.

In spite of the gloomy outlook, analysts do not think the local equity market has entered the bearish territory.

“We wouldn’t say it is a bear market yet, but it is a tough market,” Kenanga Research head of research Chan Ken Yew told The Edge Financial Daily yesterday.

According to his definition, Chan considered the KLCI a bear market only if it plunges 20% from its peak. But he noted that the general uptrend in the index since the global financial crisis in 2008 has been broken.

RHB Research analyst Alexander Chia concurred that it isn’t a bear market as he believes global economic recovery is still on track.

According to UOB KayHian head of research Vincent Khoo, the current heavy selling was a “follow through” of fears on Malaysia’s fiscal situation as a result of falling crude oil prices.

As Malaysia is a net exporter of crude oil that contributes to 30% of its coffers, the significant reduction in  prices would increase the spectre of a twin deficit — fiscal deficit and current account deficit, he explained.

“We think most oil and gas (O&G) stocks have been oversold, so we may not see a significant downside,” said Khoo.

While market sentiment remains cautious about crude oil prices, Brent crude and West Texas nudged higher yesterday to US$62.57 (RM218.99) per barrel and US$58.15 per barrel respectively.

Local fund managers when contacted see the current market slump as a bargain-hunting opportunity.

 “We are looking for opportunities in stocks that are able to withstand the general decline in crude oil prices,” said UOB Asset Management (M) Bhd executive director and chief executive officer Lim Suet Ling.

She said not every company is affected negatively by the falling price of the commodity. For instance, Tenaga Nasional Bhd should fare well in the long term.

“We advise our clients to buy on bargain and to hold on to value stocks. We have to evaluate the business model company by company,” she added.

Philip Capital Management Sdn Bhd’s Ang Kok Heng recommended a buying stance but with caution. “We advise clients to buy and hold in the long term of a year,” he said, adding that his cash position stood at 30% of total portfolio.

This article first appeared in The Edge Financial Daily, on December 16, 2014.