This article first appeared in Wealth, The Edge Malaysia Weekly on January 26, 2026 - February 1, 2026

Vasu Menon, managing director of investment strategy at OCBC Wealth Management Singapore, joins a list of professional investors who are not too worried about the artificial intelligence (AI) bubble burst. Instead, he believes the independence of the US Federal Reserve and the subsequent interest rate movements are the biggest risks this year.

In an interview with Wealth, Menon says the AI bubble is a well-known risk that keeps everybody’s guard on. It is also a super trend expected to last for a decade, just like the growth in PCs, the internet and smartphones in the early years.

“The AI bubble fear is at the back of a lot of investors’ minds. When you talk to clients and the media, it’s there. Fund managers who make presentations are talking about it. And when you do Google searches, you’ll see many articles about it,” he says.

“Markets are very nervous that this is going to be another dotcom bubble, but we don’t think so. We think AI is here to stay; it’s a multi-year super trend. You just have to be patient.”

Menon also takes comfort in the large pile of investors’ money still sitting on the sidelines, signalling that investors are being cautious while there is ample liquidity in the market. In the US itself, there are about US$8 trillion (RM32.45 trillion) invested in money market funds (MMFs), much of it invested in fixed deposits.

“That amount of money sitting on the sidelines is at a record high. It shows a very healthy level of scepticism in the markets. Investors have become a lot smarter over the last decades and aren’t just following [market trends] blindly. They are buying selectively and not aggressively,” he says.

Investors are keeping their money in MMFs, as they earn annual yields of about 4%, which is relatively high. Yet, sentiment can change drastically as key events unfold, especially in May when Jerome Powell’s term as the Fed chair comes to an end.

Menon says investors should keep an eye on whether Powell will be replaced by a Donald Trump loyalist who could be inclined to cut interest rates more aggressively than markets expect.

While it is impossible to foretell the future, rate cuts supported by economic data and sound reasoning tend to be a boon to stock markets. Money market rates will come down, and part of the US$8 trillion will start flowing into riskier assets, including equities, pushing prices up.

“When the Fed cuts rates, you tend to see a positive impact on the equity market as it unleashes liquidity that’s sitting on the sidelines. We are actually relatively positive on the [US] markets. We’ve been saying it since the end of last year and the beginning of this year. And, so far, it has done relatively well.

“What the markets will not like to see is the Fed’s independence being compromised and cutting rates aggressively with little basis under political pressure,” Menon says, adding that he sees it as the biggest risk this year.

The US economy was humming along well at the time of writing, with the latest inflation figure holding steady around 2.8%. The One Big Beautiful Bill Act, signed into law last July, took effect this month, with tax provisions provided and fiscal spending to be implemented.

Still, investors should keep a close watch on the US job market, which has been showing signs of weakness, especially since last May, says Menon.

According to news reports, the US December jobs report, released on Jan 9, has shown that employers added 50,000 jobs to the US labour force, slightly shy of the roughly 73,000 jobs that economists expected. US annual job growth has been slowing since 2021 to 584,000 last year.

Menon’s advice this year is to stay invested in tech and AI stocks beyond the US tech giants, such as the Magnificent Seven, which are fetching high valuations. They should also look for opportunities beyond the US and hold more gold.

He says the AI trend is benefiting not only the share price of the US tech giants but also semiconductor companies in Asia. For instance, the Japanese, South Korean and Taiwan stock markets have performed well this year on the back of increasing AI spending that boosts semiconductor chip demand.

“The biggest producers of semiconductor chips are all in Asia. Asia is benefiting from the AI boom, but many people are still looking at the Magnificent Seven without exploring companies like these in Asia.

“When people talk about the AI bubble bursting, are they talking about the whole sector? No. There are players that had not been benefiting from the trend as much in the past years and might just be playing catch-up now,” he says.

Menon says investors should consider diversifying away from the US market and look elsewhere, including Asia. Besides lofty valuations, the US dollar (USD) could continue to weaken against other currencies, albeit not substantially.

A key reason is that Trump is seen as pressuring the Fed to cut interest rates. If a Trump loyalist is appointed as the new Fed chair after Powell and cuts rates aggressively, it would cause the USD to continue to weaken against other currencies, eating into the investment returns of many investors.

On the other hand, central banks of the world’s largest economies, including the European Central Bank, Bank of England and Bank of Japan, are talking about hiking rates, which will render their currencies stronger against the USD.

“These central banks have done a lot [in cutting rates], actually more than the Fed, and they are slowing down. But the Fed is now talking about more rate cuts. On a relative basis, that’s going to weigh on the USD. We don’t see it falling off a cliff, but we see a modest depreciation,” he says.

Menon says investors should also look at Chinese companies, as the country is competing fiercely against the US in technological advancement, as well as Singapore and Malaysia.

“I was just looking at the dividend yield for the FBM KLCI and STI (Straits Times Index); both are above 4%. In fact, the highest dividend yields among major markets in Asia are Singapore and Malaysia.

“The FBM KLCI valuation is attractive, and you’re seeing a lot of foreign direct investments flowing into the Johor-Singapore Special Economic Zone, especially in data centres. The ringgit is strengthening,” he says.

Politics in Malaysia and Singapore is also relatively stable compared to other Asean countries.

Gold, which appreciated nearly 70% last year, still has some legs. As a rule of thumb, individual investors were advised to keep 5% of gold in their investment portfolio in the past. They can now consider doubling it to 10% against the current market and economic backdrop, says Menon.

He says gold used to be seen as a tactical asset, a hedge for an investor’s portfolio during major market downturns. But it is now seen as a strategic asset to enhance investment returns.

“It is something investors should have more of, as the world has changed, with Trump introducing a new world order with a lot of uncertainties that undermine the US dollar and the US itself.

“Meanwhile, a lot of governments, not just the US, but also the EU (European Union) and Japan, are all implementing massive fiscal spending, taking on big debts that are causing concerns about whether this will be a long-term trend. As the Trump administration is cutting taxes, Japan’s Takaichi government is going to unleash a massive amount of fiscal stimulus. In Europe, such as in Germany, they are going to spend a lot on its defence [as geopolitical tension increases].

“Governments are going to end up spending a lot more, incurring more debt. All this undermines confidence in fiat currencies and has resulted in gold being sought after.”

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