The world’s largest hedge fund is betting on falling prices for Europe’s top stocks. The stake: 6.7 billion euros. These are the 22 European stocks that Bridgewater boss Ray Dalio is targeting – including some German companies.
Stock markets around the world have tumbled. Where many small investors work up a sweat because they can see their retirement savings flowing away, large investors and hedge fund managers are only really warming up. Bridgewater boss Ray Dalio is now launching a spectacular short bet against European stocks, the Financial Times reports.
According to this, Dalio has placed bets on falling prices for at least 22 stocks. This comes from data from the analysis house Breakout Point. The value of the short bets is said to be 6.7 billion euros. “When it comes to the extent of the short selling, we can’t think of any other hedge fund that came close to the current case other than Bridgewater itself,” Breakout Point told Reuters.
Short selling refers to bets on falling share prices. The shares you don’t own can be borrowed for a fee and then sold again. The bet is that the prices will continue to fall and the shares can be bought back cheaper before the redemption date. The profit for the investor is the difference between the sell price and the buy price.
It’s not the first time Dalio has caused a stir with such a spectacular bet. The hedge fund made similar bets in 2018 and 2020. With the new bet, Dalio is making it clear that he expects a further downtrend or that he wants to hedge against it. The tumbling stock markets are currently hit primarily by the rate hikes by the central banks. Further increases cannot be ruled out. Recession fears are spreading.
German, French, Italian, Dutch and Spanish companies are included in the hedge fund’s bet. The following positions emerge from a report by “Handelsblatt”:
Short bets on German companies:
Short bets on French companies:
Short bets on Italian companies:
Short bets on Dutch companies:
Short bets on Spanish companies:
The 22 companies are all listed in the Euro Stoxx 50. According to “Handelsblatt”, the proportion of shorted shares in all freely tradable shares in the company is 0.50 percent or slightly more. This is the limit at which hedge funds in the EU must report their short bets to regulators. Below that line, Bridgewater could have placed more bets.
However, there is also some risk involved with betting. “It is unusual for someone to make their bets so transparent,” says Volker Brühl, Managing Director of the Center for Financial Studies in Frankfurt, the “Handelsblatt”. Because hedge funds would usually try to stay below the reporting threshold. “It exposes him to the risk that the market will bet against him and there will be a short squeeze.”
A short squeeze is a market situation in which a share price rises rapidly and massively, usually over several days. Those investors who are short in such a situation, i.e. who have sold short, are now under pressure. This results in them having to buy back the shorted stocks to end the bets. However, if the price continues to rise, it will result in huge losses. This is how short sellers are pushed out of the market.
The short squeeze scenario and the associated rapidly rising prices are definitely possible. Other investors are now massively buying shares that Bridgewater is short in, and prices could soar. Bridgewater could thus face high losses. If Bridgewater then wants to get out of the bet quickly, that will probably also drive prices up because they are so heavily invested.
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