Massive defections by the small but economically dominant Chinese community and once loyalist minority Indians have highlighted resentment towards the Malay-led government's economic policies, they said.
The Barisan Nasional coalition, led by Prime Minister Abdullah Ahmad Badawi's United Malays National Organisation (UMNO) failed to win a two-thirds majority in parliament for the first time in four decades.
It also lost control of four states, including the technology hub of Penang, to a resurgent opposition in Saturday's polls.
Analysts said that although the government also suffered a rejection from the Muslim Malays who form its bedrock, investors may be concerned that the results could trigger political and racial instability.
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"Fund managers will be concerned with the racial divide," Chua Hak Bin, a Singapore-based economist with Citigroup told AFP.
"With the Chinese and Indians voting for the opposition, you raise the question if Malaysia's fundamentals are intact and w