“The pain will continue”


Ray Dalio, Bridgewater Associates, Founder, Co-Chairman & Co-CIO, at the WEF in Davos, Switzerland on May 24, 2022.

Adam Galica | CNBC

Billionaire investor Ray Dalio is right to bet against European stocks, and global markets still have a tough road ahead, according to Beat Wittmann, partner at Zurich-based Porta Advisors.

Dalio’s Bridgewater Associates has at least $6.7 billion in short positions against European stocks, according to data group Breakout Point, which has aggregated the firm’s public disclosures. It’s unclear whether Bridgewater’s shorts are outright bets against stocks or part of a hedge.

The Connecticut-based fund’s 22 short-term targets in Europe include a $1 billion bet against Dutch semiconductor equipment supplier ASML Holding, $705 million against France’s TotalEnergies and $646 million against French drugmaker Sanofi, according to data from Breakout Point. Other big names also shorted by the firm include Santander, Bayer, AXA, ING Groep and Allianz.

“I think he’s on the right side of history, and it’s quite interesting to see which strategies have worked best this year,” Porta’s Wittmann told CNBC on Friday.

“It was basically the quantitative trend-following strategies, which performed very well – unsurprisingly – and interestingly, the short-long strategies were pretty disastrous, and of course, needless to say, the long-only strategies were the worst, so I think it’s good now, he’s on the right side of that investment strategy.”

The pan-European Stoxx 600 index is down more than 16% year-to-date, though it hasn’t suffered quite the same degree of pain as Wall Street so far.

However, Europe’s proximity to the conflict in Ukraine and the associated energy crisis, as well as the global macroeconomic challenges of high inflation and supply chain issues, have led many analysts to downgrade their prospects on the continent.

“The fact that all of these shorts appeared within a few days indicates index-related activity. In fact, all of the companies sold short belong to the STOXX Europe 50 Index,” said Breakout Point founder Ivan Cosovic. .

“If this is indeed the strategy linked to the STOXX Europe 50 index, it would imply that other constituents of the index are also sold short but are currently below the disclosure threshold of 0.5%. We don’t know to what extent these disclosures may be an outright short bet, and to what extent a hedge against certain exposures.”

Dalio’s company is generally bearish on the global economy and has already positioned itself against the sell-off in US Treasuries, US stocks and US and European corporate bonds.

“I don’t think we’re close to a bottom”

Despite what was shaping up to be a slight recovery on Friday, Wittmann agreed that the situation for stock markets around the world could get worse before it gets better.

“I don’t think we’re anywhere near a bottom in the global indices and we can’t compare the average declines of the last 40 years, when we basically had a disinflationary trend since the [Paul] Volcker time,” he said.

Volcker served as chairman of the U.S. Federal Reserve between 1979 and 1987 and enacted steep interest rate hikes largely credited with ending the high inflation that had persisted in the 1970s and early 1980s, while causing unemployment to rise to almost 11% in 1981.

“We now have a really complex macroeconomic situation, messy inflation rates, and if you just look at the fact that in the US market we have a Treasury long below 3.5%, unemployment below 4% , inflation rates above 8% – real interest rates barely budged,” Wittmann added.

“If you look at risk indicators like the volatility index, credit spreads, default rates, they’re not even halfway to where they need to be to form a real bear market bottom, there’s still so a lot of deleveraging to pursue.”

Many loss-making tech stocks, “meme stocks” and cryptocurrencies have sold off sharply since central banks began their hawkish pivot to tame inflation, but Wittmann said there’s more to come for the market more wide.

“A lot of the heat is being dealt with right now, but I still think the key indicator here is high yield debt spreads and default rates, and they just don’t have reaches the territory that is worth investing in any time here, so the pain is going to last for quite a while.”


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