A myriad of structural headwinds have made Chinese equities strategically unattractive for the time being, according to Lombard Odier’s Michael Strobaek, despite ongoing efforts from Beijing.
Year-to-date, the CSI 300 and Hang Seng Index are already down 5 percent and 7.8 percent, respectively. While Chinese authorities continue to make efforts to boost sentiments and attract international investors, Lombard Odier believes that it may be prudent to wait a while longer.
«I think it is too early to re-enter Chinese equities,» said Lombard Odier chief investment officer Michael Strobaek at a media briefing attended by finews.asia. «They are certainly very cheap […] but assets that look cheap look cheap for a reason and there’s no reason why they can’t become cheaper. We are not in a hurry to buy that apparent risk premium any time soon.»
Strategic Asset Allocation
In fact, Lombard Odier has recently decided to significantly adjust its strategic asset allocation to reflect its downbeat views on China.
«We’ve questioned our positions on Chinese assets fundamentally and have decided to take Chinese debt and equities out of portfolios in our long-term strategic allocations,» Strobaek explained.
A Different China
According to Strobaek, China is a completely different economy from before, especially after the pandemic. In addition to relatively slower growth rates, it is also facing a material number of structural headwinds including a geostrategic standoff with the US, increasing isolation, supply chain cuts and reduced access to critical technology.
«There looks to be lingering, simmering structural issues from years and years of over-investment that need to be cleaned up,» he added. «Before that, everybody should think of China tactically rather than strategically and not be in a rush to go back in.»
2024 Outlook
Overall, Lombard Odier is maintaining a neutral risk stance in portfolios. Within equities, it prefers US over China and Europe with a focus on quality stocks. And on fixed income, it prefers investment grade credit in developed markets.