KUALA LUMPUR - Malaysia appointed new directors to 1Malaysia Development Berhad (1MDB) after dissolving the advisory board headed by Malaysian Prime Minister Najib Razak, amid global investigations into alleged money laundering and embezzlement at the state fund.
The three-member board will be chaired by the Finance Ministry's top bureaucrat, Mr Mohd Irwan Serigar Abdullah, according to an e-mail statement yesterday.
There were six members on the previous board including Mr Arul Kanda, who was brought in as president in January last year to fix 1MDB's finances. He will remain as president, the government said.
While the departure of the advisory board may put some space between 1MDB's troubles and Datuk Seri Najib, he is also the Finance Minister and that could give him sway over the investment company. The Finance Ministry is the sole shareholder of 1MDB.
1MDB's board of directors offered to resign last month after a parliamentary committee probe found poor oversight of the fund.
The committee had identified at least US$4.2 billion (S$5.8 billion) of irregular transactions by the fund.
The other new directors of 1MDB are Datuk Norazman Ayob, senior private secretary to the chief secretary of the government, and Datuk Kamal Mohd Ali, chief operating officer of Prokhas, a financial adviser to some government-linked firms.
Malaysia's benchmark stock index has erased most of its gains after climbing to this year's high in April. The prolonged impact of the 1MDB scandal is prompting investors to seek out other markets in South-east Asia, according to Baring Asset Management.
"People are probably getting impatient as they continue to hear noises about 1MDB," said Mr Lim Soo Hai, a Hong Kong-based money manager at Baring Asset. "We're hesitant to invest in Malaysia as we're not seeing a lot of interesting stocks that we can find."
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 South-east Asia, propelling the stock index to an eight- month high.
The FTSE Bursa Malaysia KLCI Index almost doubled from its 2008 lows without succumbing to a 20 per cent drop, making it the longest bull market worldwide. After gaining 7.9 per cent from this year's low in January, the stock index has retreated almost 6 per cent from the April peak.
That has pushed Malaysia's stock index far behind in the rally by its emerging peers in South-east Asia, even as lower valuations have created some bargains.
"We're still not invested in Malaysia," said Mr Raymond Kong, a fund manager at One Asia Investment Partners. "The other Asean markets have better growth prospects and better fundamentals."
This article was first published on June 1, 2016.
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