As a recession looms, the world’s largest hedge fund has placed a €6.9 billion (£5.9 billion) wager against some of Europe’s largest corporations.
Bridgewater Associates, a $150 billion (£122 billion) US hedge fund, has emerged as the largest short seller of European stocks. According to news reports, it has wagered €6.9 billion against nearly half of the EURO STOXX 50 Index, which is dominated by French and German companies.
Bridgewater Associates, led by legendary Wall Street investor Ray Dalio, is shorting well-known European banks such as ING in the Netherlands, Santander in Spain, and BNP Paribas in France. It has also taken short posts at large industrial organizations such as Vinci, a French construction company, and BASF, a German chemicals giant.
“Ray Dalio’s new large shorts make all prior whale trades look like shrimp trades,” Ivan Cosovic, founder of data and analytics firm Breakout Point, stated.
The roles have all been filled since the beginning of the week, amid growing concern about the status of the European economy. Bank of America said earlier this week that more than half of global money managers now forecast a recession in Europe over the next 12 months.
The hedge fund is betting against 22 of the 50 businesses on the EURO STOXX 50 Index in total. Bridgewater’s biggest wagers are against Iberdrola, a Spanish energy business, and Sanofi, a French pharmaceutical company.
“If it is genuinely STOXX Europe 50 Index connected,” Mr Cosovic explained, “then they are most likely short the rest of the index as well, they simply haven’t crossed the threshold yet.”
When an investor borrows a share, sells it on the open market, and intends to purchase it back later for less money, this is referred to as a short position. It is one of the strategies used by hedge funds to control risk and safeguard their holdings during a down market, when stock prices fall.
It is unclear whether these recent trades are part of a hedging strategy to mitigate losses or an opportunistic play to profit on anticipated falls.
Dalio told Italy’s La Repubblica newspaper this week that Bridgewater is buying assets that offer inflation protection while avoiding debt and countries at risk of political unrest or war.
Bridgewater has shorted European equities for the third time in the last four years. In February 2020, the Connecticut-based hedge fund bet $22 billion against European corporations, which is assumed to have been a hedge.
Then, as the pandemic hit in March 2020, Bridgewater revealed a $14 billion (£11.4 billion) bet against European stocks, including a huge stake against Dutch chipmaker ASML Holding.