While the world is increasingly affected by the corona pandemic, the stock market is experiencing its biggest crisis in ten years. Speculators use them and The Associated distortions in the markets to generate Profit from them. For example, the world’s largest hedge fund, Bridgewater Associates, has bet $ 14 billion that European companies ' shares will continue to fall as a result of the spread of the Corona Virus. This is reported by the news agency “Bloomberg”.
Companies in France, Germany, the Netherlands, Spain, Italy, Ireland and Finland are affected by the speculation.
High-Risk Demise Bets
Because of the corona pandemic, share prices have been going down steeply in zigzag prices for days. This is an opportunity for hedge funds, because they can earn a lot of money even when stock prices crash. For this they bet on the falling prices of the companies concerned. Vulnerable companies are often targeted with financial attacks, in order to help and bring the shares further to the crash.
Because hedge funds can sell shares they don’t have, they are called short sellers or short sellers. The profit consists of the difference between the purchase and sale price of the shares, minus the rental fee. The bets are risky: if the share price rises against expectations, the bet goes wrong.
Similar bets in the past
As " Bloomberg “shows, the world’s largest hedge fund” Bridgewater Associates”, led by billionaire Ray Dalio, is heavily involved in these bets on the decline of European companies. He is betting that the share prices of these European companies will fall further because of the spreading Corona pandemic. Most of the short sales relate to companies from France, followed by companies from Germany and the Netherlands.
This includes, for example, a bet of around one billion dollars that the hedge fund has placed against the German software company SAP, according to data from “Bloomberg”. The German semiconductor equipment manufacturer ASML was affected by short sales of a total of 715 million dollars. More than half a billion euros are being speculated against the Insurance Group Allianz. EUR 700 billion had been used against the Bayer Pharmaceutical Group. One tenth of all Lufthansa shares are sold empty, with several hedge funds at work here.
As Bloomberg writes, It is not clear whether the positioning of the $ 14 billion is a pure bet on a decline in the shares or part of a comprehensive hedging strategy of the company. However, Bridgewater Associates had already 2018 placed similar bets against European companies.
Derivatives not for hedging, but only for speculating
Derivatives such as options or CDS (credit default Swaps) should actually serve to hedge actual risks. They are useful for this purpose. But today CDS certificates are often bought without their buyers having to hedge a corresponding risk. CDS and warrants therefore usually no longer serve as a hedge, but are pure bets on a default or bankruptcy (CDS) or on sharply rising or falling stock prices (options).
The same applies to bets with sales or purchase options on shares of selected companies. You can pressure managers to take irresponsible risks without having to answer for them. Such financial bets on sharply rising or sharply falling prices “generate completely missed financial incentives and thus systemic risks,” said Zurich-based finance professor Marc Chesney.
“Bridgewater Associates” needs money
“Although we do not comment on our specific positions, Bridgewater trades in more than 150 markets around the world and has many interconnected positions, often to hedge other positions, and these often change, “Bridgewater Associates told Bloomberg. So it would be wrong to look at a single Position at a certain point in time to try to derive an overall strategy.
As the “[Welt]” comments, “Bridgewater” tries to avert an impending image damage with this statement – since short sellers are “not exactly popular”. What is clear is that “Bridgewater Associates” needs money. Although the hedge fund company manages around $ 160 billion, the largest Bridgewater fund, Pure Alpha Fund II, recently fell by 13 percent. Since the beginning of 2020, the losses have amounted to 20 percent. This was because they had increasingly relied on the wrong developments. This betting casino does not serve the real economy, but exposes it to inexcusable risks.
Ban on short sales due to Corona crisis
In particularly turbulent times of crisis, financial supervisors often react with a ban on such financial bets. For example, Spain has banned doomsday bets for a period of one month, Italy blocked the transactions for 90 days. And Belgium responded to the crisis by banning short sales of shares of certain companies. Short sellers such as “Bridgewater Associates” argue that they provide liquidity during difficult periods. And short sales are not prohibited.
Nevertheless, they are controversial. In various countries, it is possible to temporarily restrict or prevent short sales. In Germany, they can be prohibited if domestic stocks are affected and a significant market disturbance threatens. Many other countries, including the USA, are familiar with similar possibilities of intervention. Since 2012, the European Securities and Markets Authority (ESMA) has also been allowed to ban short selling, which was confirmed by the European Court of justice in 2014.