‘We expect the Spanish economy to grow at a fast pace’ – an interview with Michael Strobaek, our Global CIO

Article published in Expansión on 26 November 2024.

Lombard Odier's investment strategy for 2025 revolves around the United States, with Donald Trump’s presence in the White House at its centre. ‘The world will be shaken by more adverse US trade policies, while the shift to a bipolar and fractured world is likely to accelerate,’ says Michael Strobaek, Global Chief Investment Officer (CIO) of Private Bank Lombard Odier, in an interview with Expansión, the first given to a Spanish media outlet since he took up the position a year ago. ‘This requires careful risk-taking. Vigilance and agility in tactical investment decisions will remain key,’ he adds.

The world will be shaken by more adverse US trade policies, while the shift to a bipolar and fractured world is likely to accelerate

Strobaek, who arrived from Credit Suisse where he was on the board of directors, says the US is one of the Swiss bank's favoured geographies for the year ahead. He is ‘aware’ of the risks of overweighting the US stock market because of high valuations and a dependence on technology stocks. Yet he remains confident in this market since most of the big tech companies delivered strong results in the third quarter. He also sees the artificial intelligence (AI) growth trend continuing to gain traction, ‘with some signs of improving investment returns and productivity gains. In addition, we expect AI monetisation trials to accelerate in the coming years’.

Strobaek believes that there is scope for further dollar rises ‘beyond any near-term consolidation’. He believes that his assumption of a 4% terminal interest rate from the Fed has not yet been priced in, and that investors’ dollar positioning ‘is relatively modest’.

Read also: ‘America First’ is already reshaping the world. Investors must act

Lombard Odier believes that geopolitics should continue to be monitored after the rallies in many markets this year, which will lead investors ‘to look more critically at sources of risk’. In fixed income, he favours corporate bonds in general and high yield in particular. He expects the performance of US Treasuries to decline, and focuses on German Bunds and UK Gilts.

Strobaek also makes room in portfolios for gold. He believes it will reach USD 2,900 per ounce in a year’s time (it is currently trading at USD 2,620) thanks to rising central bank reserves and ETFs.

Away from bitcoin

What the bank does not leave room for in portfolios is bitcoin or any other cryptocurrency, despite the impressive rally and the fact that investment firms are increasingly featuring them in their asset offerings. ‘They are not part of our investment universe and it is important to understand that they have outsized volatilities, with repeated instances of losses of up to 80% from their previous highs. We believe investors should carefully calibrate their exposure to these volatile assets if they choose to hold them,’ says Strobaek.

We expect the ECB to cut interest rates to a terminal level of 1.25%, or more if economic growth deteriorates more sharply

Interest rates

‘We expect the ECB to cut interest rates to a terminal level of 1.25%, or more if economic growth deteriorates more sharply,’ explains the investment manager, who projects a more accommodative ECB monetary policy than most investment firms, which put them at 2%. Rates would thus fall below the ECB's 2% inflation target. ‘With fiscal policy tight in most states, there is room for monetary policy to react,’ he says ahead of the upcoming release of the bank's 2025 investment outlook.

Read also: Outlook 2025

Trump’s policies squarely impact his view of the ECB's monetary policy and his investment strategy in Europe, his least favoured geography. With the exception of ‘some recovery potential in the French stock market’, Strobaek avoids the continent due to ‘weak earnings prospects’.

Lombard Odier expects Spain to grow at a faster pace next year than the core European countries

Spain

Lombard Odier expects Spain to grow at a faster pace next year than the core European countries, but does not expect growth to be as ‘buoyant’ as this year. This fact, coupled with interest rate cuts, will mean that ‘the support factors for banks that we have seen in 2024 are likely to fade’.

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Banking is the most heavily weighted sector on the IBEX 35, close to 30%, and investors are now also looking at taxation in the sector. ‘Corporate taxes, when they rise in a context of subdued inflation, tend to negatively affect the equity market,’ says Strobaek. On the other hand, he points out that net interest income is likely to decline due to lower rates and bonds. ‘There are some headwinds for Spanish banks. However, many have reduced their sensitivity to rates after many years of deleveraging, and loan growth seems to be positive again. This could help offset some of the pressure,’ he adds.

Investors interested in Spanish equities should be mindful of the euro's expected weakness next year because ‘there are opportunities in export sectors and companies that can benefit from this,’ Strobaek adds.