Bridgewater Makes $14 Billion Short Against European Stocks

Nishant Kumar, Bloomberg News

Pedestrians walk through an underpass in Baku, Azerbaijan, on Friday, March 16, 2018. Azerbaijan's economy barely returned to growth last year, increasing 0.1 percent after shrinking 3.8 percent in 2016. Fitch Ratings predicts gross domestic product will expand 1.8 percent this year and 3.8 percent in 2019. Photograph: Taylor Weidman/Bloomberg Photographer: Taylor Weidman/Bloomberg , Bloomberg

(Bloomberg) -- Bridgewater Associates, the world’s biggest hedge fund, has built up a $14 billion bet that shares in European companies will continue to sink amid the worsening coronavirus outbreak.

The investment firm led by billionaire Ray Dalio made a string of wagers against stocks in countries from Germany to Italy, according to filings between March 9 and 12 compiled by Bloomberg. They include a $1 billion bet against software company SAP SE and a $715 million wager against semiconductor equipment maker ASML Holding NV.

The wager hasn’t been enough to protect the firm’s main hedge fund from steep losses. Bridgewater’s Pure Alpha Fund II tumbled roughly 13% this month through March 12, worsening the decline this year to about 20% as the fund found itself on the wrong side of the market rout.

Bridgewater’s Shorts by Country

The value of Bridgewater’s short positions in Europe has been rising this month amid sell-offs sparked by fears that the spread of coronavirus will tip the global economy into a recession. Stocks have tumbled worldwide with the Euro STOXX 50 index slumping by more than a third this year.

It’s not clear whether the bet is an outright wager on a fall in shares or part of a broader hedging strategy of the firm that manages about $160 billion. The money manager built a similar wager against European companies in 2018. Short sellers sell borrowed securities to buy them back at lower prices and pocket the difference as profit.

“Though we won’t comment on our specific positions, Bridgewater trades in more than 150 markets around the world and as such has many interrelated positions, often to hedge other positions, and these change often,” said a spokesperson for Bridgewater. “So, it would be incorrect to look at any one position at any one time to try to determine an overall strategy.”

On Monday, Dalio said in a LinkedIn post that the Federal Reserve’s decision to cut rates to almost zero puts the markets in an even more precarious position.

“Long-term interest rates hitting the hard 0% floor means that virtually all asset classes go down because the positive effects of interest rates falling won’t exist (at least not much),” said Dalio. “Hitting this 0% floor also means that virtually all the reserve country central banks’ interest rate stimulation tools (including cutting them and yield curve guidance) won’t work.”

(Adds chart of firm’s short bets by country.)

To contact the reporter on this story: Nishant Kumar in London at nkumar173@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Alan Mirabella, Josh Friedman