On Friday we reported that as it was quietly building out its mega bearish bet, the world’s biggest hedge fund, Bridgewater Associates, unveiled its biggest short position yet: a $14+ billion, and growing, thematic basket of European corporate shorts which includes such iconic names as Airbus, Total, Enel, Siemens as well as Europe’s biggest banks Deutsche Bank, BNP Paribas, Intessa, ING and Banco Santander.
This morning, in its Live Markets blog Reuters picked up on this theme and highlighted that although the immediate stock market reaction hasn’t been huge, traders are starting to digest the news of Bridgewater’s short bets and interpret them as a broader wager on market stress.
As Reuters’ Helen Reid writes, Bridgewater “may be so bearish that they expect a stock market disaster, says an equity sales trader at a big European bank.” That said, one alternative explanation for these big bets against German names could be a super-bullish position on the euro, which would imply problems for exporters. The trader also warned against taking the position of a single asset manager as gospel, however, saying “they’re not Buffett”.
Other theories abound, with a third source suggesting that the range of positions is so broad that it’s difficult to find a rationale to it “and it may just be a bet on fund flows.”
Incidentally, this may address another question that has emerged: why Bridgewater has no shorts on the UK market.
According to data provided to the UK regulator, there are no short-positions taken against blue-chip British companies by Bridgewater, as opposed to German corporate titans. According to EU regulations, short positions bigger than 0.5 percent of the capital of an issuer must be disclosed to the bourse’s watchdog (link).
Perhaps Dalio refuses to short the UK as the market is already very underowned, with little potential selling pressure.
As for why Dalio is short those particular EU names in particular, a trader told Reuters that they’re quite high beta, meaning they are highly sensitive to market moves. “It seems they clearly see the DAX / market a lot lower.”