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Giant US hedge fund raises bet against Europe to €10bn

·3-min read
Christine Lagarde ECB recession eurozone - AFP
Christine Lagarde ECB recession eurozone - AFP

The world’s biggest hedge fund has extended its bets against Europe with billions of dollars in new short positions against some of the continent’s largest businesses.

US hedge fund Bridgewater Associates, which has $150bn (£122bn) in assets under management, is now shorting 28 of Europe’s biggest businesses, new filings show.

The short-selling – effectively betting that share prices will fall – is worth €10bn (£8.6bn), according to analysis carried out by Breakout Point, a data and analytics firm.

That is a sharp increase from last week, when disclosures showed Bridgewater had short positions worth €6.9bn (£5.9bn) against 22 European companies. The size of that initial move already made Bridgewater the biggest short-seller in Europe.

All 28 companies targeted by Bridgewater are listed on the Euro Stoxx 50 Index, which is mainly composed of Dutch, French, German, and Italian businesses. New Bridgewater targets include Germany’s Adidas and Siemens, and France’s Danone.

Ivan Cosovic, founder of Breakout Point, said it is “a fair assumption” that Bridgewater is also shorting the other companies on the index but positions may not yet have crossed the threshold for disclosure.

Most European regulators require short-selling to be made public if it makes up 0.5pc or more of a company’s total stock. It is possible Bridgewater has other positions that fall below the threshold.

Short sellers aim to profit from declining stock prices by selling borrowed shares and buying them at a later date. If that price has fallen, they pocket the difference between what they sold at and the price rebought at.

Short-selling can be used to protect against losses as part of a broader investment strategy or as an out-right bet against the prospects of a business. Bridgewater has been tightlipped about its strategy and has repeatedly declined to confirm whether the positions are part of a wider hedging strategy.

However, research published on Bridgewater’s website shows the firm is pessimistic about the current economic environment – especially in Europe, where inflation is rife.

“We believe that markets are underpricing the amount of tightening that will be required to tame inflation, and see developed world policy makers as highly constrained,” analysts wrote.

“The important point is that however you cut it, major shifts in market pricing that are particularly bad for equities and typical portfolios haven’t yet occurred.”

Many western economies are on the verge of stagflation, but Bridgewater argues this is not reflected in market pricing. Countries are still anticipating a return to target inflation of around 2pc next year but Bridgewater expects high inflation to persist.

“With respect to inflation, while the move in discounted inflation can look big up close, it’s actually modest by historical standards,” analysts wrote.

Inflation rates in the West reached levels of over 10pc during the 1970s.

Bridgewater Co-CIO Greg Jensen also voiced his concern about Europe’s dim growth prospects in a podcast with Bloomberg last month.

“You go around the world and there are big issues”, he said. “Europe’s going into a significant recession, probably worse than the US, as a result of… the supply shock there and the impact of [the war in Ukraine].”

The current bets against European business are the highest since Bridgewater last built similar positions of $14bn (£11.4bn) in 2020 and $22bn (£17.9bn) in 2018, respectively.

Bridgewater was contacted for comment.