KUALA LUMPUR: The next global financial crisis will be worse than the last one in 2008, warned outspoken local fund manager Tan Teng Boo, who believes that only China will emerge unscathed from it.
“I am more frightened than before because the world economy is more vulnerable than 2008,” Tan told The Edge Financial Daily in an interview.
That’s because advanced economies such as Japan, Europe and the US are left with no policies to tackle the financial market, said Tan, who is founder and managing director of Capital Dynamics Asset Management Sdn Bhd.
“My biggest concern is that the three developed regions would be running out of options to tackle any financial panic in the future.
“For instance, if the New York stock market were to drop by 20% to 30%, every country [in the world] will be affected and investors will panic,” he said.
Tan also pointed to Japan’s rising public debt, which accounted for 240% of its gross domestic product (GDP), while Europe is implementing a negative interest rate policy.
Hence, fiscal stimulus spending and cutting interest rates are out of the question, he said.
On the other hand, Tan is confident that China’s economy will escape the impact of a global financial crisis, as the republic still has room to cut interest rates and it has never adopted quantitative easing to stimulate its economy.
“This country has a low budget deficit and still has plenty of policy options,” he said.
The 2008 global financial crisis was considered by many economists as the worst financial crisis since the Great Depression of the 1930s. It led to the collapse of large financial institutions such as Lehman Brothers and stock market crashes.
Despite coming out of the last financial crisis, Tan said Asia is no less vulnerable today. “The regulators always think that they are more prepared than before until they discover the next crisis.”
Tan believes that the world is on the verge of collapse and that the global financial markets are now in a “very dangerous” stage.
“[For example,] why is [American billionaire hedge fund manager] George Soros having so many positions, betting that the Standard and Poor’s (S&P 500 index) will fall?” he asked.
“The next bear market is something that can happen anytime. The birth of a bear market is during a bull market. So we are now looking at the birth of a bear market, only that we don’t know when it will happen.
“People are so complacent. They don’t realise each time when there is a bull market, there will always be a bear market,” said Tan.
Closer to home, Tan is of the view that Malaysia is unlikely to escape from a global financial crisis, as the country’s household debt as well as government debt remain at high levels.
He noted that Bursa Malaysia, which has a price-earnings ratio of 17 to 18 times, is not attractive at the moment due to its high valuation.
“Bursa is not cheap based on valuations, so finding stocks that are attractively priced is getting to be difficult,” he said.
Tan cautioned investors against owning and buying properties or shares for now.
In Asia, he said, the three countries where property prices have grown the fastest are Malaysia, Taiwan and Hong Kong.
“If you look at the properties in Marina Bay [Singapore], prices have dropped back to the 2010 levels. Iskandar Malaysia’s property market is a bubble waiting to burst,” he said.
On another note, Tan said Capital Dynamics, which manages the iCapital.biz Bhd closed-end fund, is finalising the set-up of the world’s first dual-listed global fund.
“We are in the final stage, with a progress rate at 95% to 98%. We still need to get listing approvals from the two countries,” he said.
This article first appeared in The Edge Financial Daily, on October 2, 2014.