Veteran fund manager Tan Chong Koay said investors could protect their investments by selling “grossly overvalued stocks and invest in short-term bonds” in the new year.
Tan, the founder, chairman and chief strategist of Pheim Asset Management Sdn Bhd (Pheim AM), is concerned about the US stock market which is “abnormally high”.
“The US market is volatile and hovering near its all-time high. As such, it is prudent (for investors) to reduce their exposure and not be fully invested,” he told FMT Business.
He pointed out the price-to-earnings ratio of the Dow Jones Industrial Average (DJIA) is already at 24, which is extremely high compared to the past when it was between 10 and 15 at its highs.
The PE ratio measures a company’s share price relative to its earnings per share. A high PE ratio basically means a company’s stock is overvalued, or that investors expect high growth rates in the future.
He said the major risk is that the US market will pull other markets down if it corrects sharply.
Citing the Covid-19 market crash in 2020, Tan said the DJIA dropped 38.4% between Feb 12 and March 23, its biggest ever drop in just five-and-a-half weeks.
The major indices in Asean fell between 35.75% and 18.35% (for the FBM KLCI) during the period, with Malaysia’s small-cap FBMSC Index falling 42.77%, and some stocks crashing more than 60%, he noted.
“So, if you are invested in the US market, you should take some profit and reduce your exposure. That’s wisdom.
“No one can sell at the highest point. Investors shouldn’t take maximum risks to gain maximum returns.
“Instead, you want to take acceptable risks for above average returns,” he said, adding this advice was based on his own investment philosophy of “Never fully invest at all times”.
Investment philosophy
This approach essentially emphasises holding cash to buy undervalued assets during market downturns and reducing exposure at market peaks to avoid huge losses during market corrections or crashes.
Tan’s suggestion that investors buy short-term bonds is based on the idea that they are seen as safe havens when equity markets crash, boosting their prices and providing protection or a cushion for investors’ portfolios.
Bonds also have the benefit of regular interest (coupon) payments and principal repayment at maturity, providing a consistent cash flow even when stocks are tumbling.
Nevertheless, Tan points out there are still good opportunities for investors in 2026 in the Malaysian and Asean markets.
“There are still shares (of good companies) that are available at very reasonable prices. However, you must know how to pick stocks,” he added.
Taking a back seat?
Tan, 75, appears to be at a crossroads given the news last month that Affin Bank Bhd had entered into a conditional share purchase agreement to acquire 100% of Pheim AM for RM50 million cash.
The award-winning fund manager declined to comment when asked if this meant he was exiting the fund management business after 50 years.
Tan said he was not at liberty to comment as the proposed acquisition has yet to receive regulatory approvals from Bank Negara Malaysia and the Securities Commission Malaysia. The deal is expected to be completed by the first quarter of 2026.
Tan, who founded the boutique fund management company in 1993, is its largest shareholder with a 45% stake.
Though Pheim AM is a relatively small outfit, its funds have consistently outperformed many of its local and international peers, racking up a multitude of international awards over the years.
Though Tan is selling off his Malaysian business, he still retains control of Singapore-based Pheim Asset Management (Asia) Pte Ltd, which he established in 1995.