Lombard Odier abandoned the entire allowance in China, will not buy the rebound

(Bloomberg) — When Michael Strobaek joined Lombard Odier as chief investment officer in November, one of his first big moves was to sell all of the China stocks and bonds in his private client holdings.

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“We removed all of China’s assets,” said Strobaek, who instead shifted the Swiss private bank’s $249 billion in U.S. stocks, Treasuries and the dollar. It worked “extremely well,” he said in an interview Friday.

Even after a recent blitz of stimulus from Chinese authorities lifted the nation’s benchmark index last week to its biggest gain since 2008, Strobaek has no regrets.

The bank’s China holdings accounted for about 6 percent of its strategic asset allocation, which determines how clients’ funds are split between stocks, bonds and other assets. Now it’s zero, Strobaek said. Lombard Odier has total assets under management of 209 billion Swiss francs, most of which are private clients, while the asset management unit has approximately 63 billion francs.

The comments underscore the divisions among investors over whether China’s stimulus last week is the start of a broader recovery. Billionaire investor David Tepper said he was buying more of “everything” related to China after Beijing’s measures beat expectations. Eurizon SLJ Capital’s Stephen Jen said a “serious recovery” in Chinese stocks is possible in a note to clients on Friday.

Strobaek, a Dane who joined Lombard Odier from Credit Suisse last year, is not convinced.

“I don’t think it’s going to have a lasting, lasting impact on the stock market or the economy,” he said of the stimulus. “It’s a short-term measure to boost sentiment. And frankly, when the government engages in the capital markets in any material way, I normally see that as not a good sign.”

While Strobaek fielded questions about how clients can take advantage of last week’s recovery, his investment staff advised clients to participate remotely — through Hong Kong stocks or stocks linked to Chinese exports.

After making gains on US stocks this year, he is now considering a pullback given how high valuations have become.

“Our next moves will be to start really reducing US equities and moving more outside the US, including into emerging markets,” he said. “Excluding China.”

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