Despite anti-graft efforts among government-linked companies in Malaysia, investor confidence is not improving due to the financial scandals surrounding 1MDB and Prime Minister Najib Abdul Razak.

This is especially true now that overseas investigations into 1MDB are ongoing, even if most of them are still in the early stages.

This has damaged Malaysia's reputation in the eyes of investors, said Mixo Das, a Singapore-based strategist with Nomura Holdings Inc.

"The market is pricing in a potential long-term investment climate deterioration," Das said, as reported by Bloomberg today.

Das has also given Malaysia an underweight rating, based on the poor corporate earnings outlook this year.

Sydney's AMP Capital Investors investment strategy head Shane Oliver said he would not be allocating any more funds to Malaysia.

"If you go back a decade ago, emerging markets were a favourite place to invest in, but now there are issues with commodities and governance.

"It probably doesn't change anything in Malaysia, but it does in a sort of way change the view of others towards Malaysia.

"It is something you need to be wary of," Oliver said.

Bloomberg said Najib had announced that he would bring out as much as RM20 billion from state funds to bolster government-linked shares, following outflows spurred in part by falling oil prices and China's slowdown.

Foreign investors sold a net US$7.4 billion Malaysian stocks and bonds, while the ringgit fell 19 percent last year, they added.

"The scandal has thrown Malaysia's governance failings - both political and economic - into sharp relief.

"The 1MDB scandal raises the stakes significantly," said Nicholas Spiro, a partner at London-based Lauressa Advisory Ltd.

1MDB is the exception

However, Minister in the Prime Minister's Department in charge of Economic Planning Abdul Wahid Omar pointed out that 1MDB is the exception in the anti-graft movement among Malaysian companies.

Most other Malaysian companies have made good progress in improving transparency, Wahid said.

"We must remember that 1MDB is the exception.

"The norm for government-linked companies would be the massive transformation that we undertook some 11 years ago and we have seen this group of 20 large government-linked companies, they have improved in terms of their governance, their performance and their role in nation building," Wahid ( photo ) said.

Meanwhile, Manulife Asset Management Services Bhd senior fund manager Elsie Tham said investors will focus on the fundamentals, which she believes Malaysia still has.

"What most investors are looking for is political stability and certainty.

"Despite all the background noises, these two elements are still very much intact in Malaysia at this juncture.

"I believe there are still plenty of opportunities for investors in Malaysia," Tham said.

1MDB, whose advisory board is chaired by Najib, has been the focus of several overseas investigations, including in the United States, Switzerland and Singapore.

It has also been investigated by Malaysian authorities following accusations of financial mismanagement and graft, allegations that 1MDB has denied.