Ray Dalio’s Bridgewater has increased its bet against European stocks by around 500%.
Bridgewater earlier this month disclosed a range of short bets worth more than €1.5 billion, according to analysis of regulatory filings by research firm Breakout Point. In total, the hedge fund now holds nearly €9 billion in short positions.
The hedge fund’s short position in Bayer rose to 0.62% of the healthcare company’s shares from 0.51%. A rough estimate based on current market capitalization would value the short position at €380 million. Similar increases were seen in its shorts from Allianz, Santander and BASF.
“Given deteriorating fundamentals and high inflation, I’m not surprised they think this could be the start rather than the end of the correction,” said Patrick Ghali, co-founder of the equity firm. London-based hedge fund advisor Sussex Partners.
The hedge fund also disclosed short positions in new stocks, including software giant SAP, manufacturer Siemens and Adidas. SAP’s market capitalization of over €100 billion means that the fund’s 0.54% short position would total over €500 million.
Between June 13 and June 17, Bridgewater disclosed 26 short positions exceeding 0.5% of a company’s shares.
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Most European regulators require public disclosures for short positions that represent 0.5% or more of a company’s shares. It is possible that Bridgewater has other short positions below the disclosure threshold.
As inflation remains stubbornly high and the war in Ukraine continues to disrupt the global economy, there are growing fears that a recession is looming. A survey conducted by the the wall street journal US economists estimate that there is a 44% chance of a recession in the next 12 months. The same poll conducted in January indicated only an 18% probability.
“So they would see an opportunity,” Ghali said. “Expect consumer sentiment and data to deteriorate and market participants to begin to recognize that a recession is more likely than they currently assume.”
The French CAC 40 and the German DAX 40 are both around 16% below their level at the start of the year. In the United States, the S&P 500 fared less well, entering bearish territory earlier in June, it has fallen 21% since January.
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But another trader was more skeptical of Bridgewater’s moves.
“Where was Bridgewater earlier this year?” said a short seller who bet against European stocks Financial news. “Why increase your short positions so much after one of the fastest market declines in history? My instinctive reaction after seeing these actions is to cover my shorts.”
The last time Bridgewater disclosed short positions of this size was in the first quarter of 2020, around the time the coronavirus pandemic took hold.
Short sellers borrow stocks, sell them back into the market in the hope that they will go down, and then buy them back at the lowest price. They then return the shares to the lender, pocketing the difference.
The trading strategy is among the riskiest; while long investors can only lose their initial investment, short sellers could lose significantly more than that if the stock rallies past the buy price.
Bridgewater has been contacted for comment.
To contact the authors of this story with comments or news, email Trista Kelley and Jeremy Chan