Hopes of luring back global investors to a battered stock market are dimming by the day for Malaysia's government.

The benchmark FTSE Bursa Malaysia KLCI Index is down 14 per cent from a record in May last year and it is the worst major market in the world so far this year, having slipped 3.6 per cent. This is even amid a rally in global equities spurred by the Federal Reserve's dovish pivot and a potential trade deal between the US and China.

The gloomy outlook is not likely to end any time soon, said Samsung Asset Management.

"Malaysia will likely disappoint over the next year because since the new government came to power last May, it has been lowering public debt with fiscal tightening," said Mr Alan Richardson, a regional fund manager at Samsung Asset in Hong Kong. "This will be the theme till May next year."

Euphoria about Malaysian stocks has faded after almost one year since Tun Dr Mahathir Mohamad's surprise election victory last May, as the new administration struggled to clean up government inefficiencies and corruption.

Unfulfilled campaign promises partly due to the legacy it inherited have also hurt its popularity. The new administration last month lowered its 2019 economic growth forecast and has been on an austerity drive to rein in its budget deficit.

The stocks gauge last week fell to its lowest since 2016 even as the price of crude oil, one of the country's major exports, has risen by a third this year. The stock index ended 0.1 per cent down yesterday.

"The perception that Malaysia is the only beneficiary in Asia from rising oil prices is a fallacy," Mr Richardson said. "Rising oil price is negative for Malaysia" because it imports more oil products than what it exports as crude, he added.

Foreign investors have dumped Malaysian shares worth more than a net US$500 million (S$677 million) so far this year, according to Bloomberg-compiled data. Malaysia's central bank last month pledged to keep monetary policy accommodative as global risks weigh on the trade-reliant economy.

Not everyone is bearish. Mr Bharat Joshi, a Jakarta-based fund manager at Aberdeen Standard Investments, is neutral on Malaysian stocks and sees green shoots in infrastructure and oil-related stocks.

Construction shares and oil and gas stocks will outperform the market following the resumption of talks on projects including the East Coast Rail Link and a rebound in commodity prices, he said.

However, Mr Joshi and Mr Richardson shared the view that the weak performance of the new government and companies has weighed on sentiment so far.

Mr Richardson said he is bearish not because there is a downside risk, but "just that there is nothing to be positive about over the next 12 months".

BLOOMBERG