The Malaysian stock market is seeing an exodus of foreign funds as the 1MDB scandal escalates, according to Bloomberg.

"Foreign funds are making a dash for the exit as international probes related to troubled 1MDB widen into one of the worst global financial scandals.

"Overseas investors have pulled money from Malaysian stocks for a fifth straight week following the longest buying spree in two years.

"The FTSE Bursa Malaysia KLCI Index is the only decliner among major developing peers in Southeast Asia in 2016," it said.

It cited MIDF Amanah Investment Bank which said foreign investors sold a net RM3.9 billion of Malaysian shares in the five weeks from the end of April.

This reduced inflow to RM2.48 billion to date compared with outflows of RM19.5 billion last year and RM6.9 billion last year.

The net outflow of foreign funds was seen throughout May, shortly after 1MDB on April 26 defaulted on the coupon payment for its US$1.75 billion bond.

The Malaysian fund defaulted for the second time on another US$1.75 billion fund on May 11.

The country's stock market had seen a brief recovery at the start of this year, but the 1MDB's defaults coupled with escalating international investigation had caused jitters among investors.

"The exodus of international funds is a dramatic reversal from the first quarter of the year when money managers piled in at the fastest pace in Southeast Asia, propelling the stock index to an eight-month high.

"After gaining 7.9 percent from this year's low in January, the stock index has retreated almost six percent from the April peak.

"That's pushed Malaysia's stock index far behind in the rally by its emerging peers in Southeast Asia even as lower valuations have created some bargains," Bloomberg said in its report.

The report, quoting Baring Asset Management, said the prolonged impact of 1MDB prompted investors to seek out other markets in the region.

"People are probably getting impatient as they continue to hear noises about 1MDB," Hong Kong-based money manager at Baring Asset Lim Soo Hai was quoted as saying.

“We're hesitant to invest in Malaysia as we're not seeing a lot of interesting stocks that we can find," he added.

It is not all doom as gloom as not all money managers were bearish with Malaysia's prospects.

"This is a healthy correction and might be the best opportunity out there to position for the next leg up," KL-based Amundi Malaysia investment manager Tan Ming Han was quoted as saying.

"It's similar to a seasonal downpour resulting from economic, political and global macro noises," he added.