Ray Dalio at the 2018 WEF in Davos, Switzerland on Jan. 23rd, 2018.
Adam Galica | CNBC
The largest hedge fund in the world has reportedly staked more than $1 billion that global equity markets will fall over the next three months.
The wager placed by Bridgewater Associates would pay off for the firm if either the S&P 500 or the Euro Stoxx 50 (or both) decline, people familiar with the matter told the Wall Street Journal.
The Journal added that the Bridgewater bet is comprised of put options — assembled over months by Goldman Sachs and Morgan Stanley — that give investors the right (but not the obligation) to sell stocks at a predetermined price by a given date.
The firm paid about $1.5 billion for the contracts, about 1% of Bridgewater’s $150 billion in total assets under management, the report said.
“Though we won’t comment on our specific positions we do want to make two things clear,” Bridgewater said in a statement to CNBC. “First, the way we manage money is to have many interrelated positions, often to hedge other positions, and these change often, so that it would be a mistake to look at any one position at any one time to try to deduce the motivation behind that position.”
“Second, we have no positions that are intended to either hedge or bet on any potential political developments in the U.S.,” the firm added. Though the firm wouldn’t confirm the motivation behind the bearish bet, many investment strategists and investors alike have grown wary in recent weeks as all three U.S. equity indexes clinched new all-time highs.
The records have come despite what many have categorized as decent-at-best trade developments between the U.S. and China, with both nations still haggling over a phase one of a broader agreement. Doubts about a trade truce have crept higher over the last week, especially on the heels of the U.S. Senate’s unanimous vote on Tuesday to support the pro-democracy Hong Kong protesters.
China, in response, said the U.S. was interfering.
The bond market, however, appears to have already priced in diminished prospects for a deal as October’s marked uptick in yields has given way to a partial retracement in November. The Dow Jones Industrial Average fell as much as 258 points on Wednesday after Reuters sources told the outlet that a deal may not be completed by the end of this year.
For his part, Bridgewater founder Ray Dalio has been less than rosy in his projections for future relations between Washington and Beijing.
“There is a trade war, there is a technology war, there is a geopolitical war, and there could be capital wars. And how that’s approached is going to determine what our futures are like,” Dalio said from New York last Friday.
“I honestly don’t know how it will be approached. We want to be optimistic,” he added.
— Click here for the original Wall Street Journal report.
— CNBC’s Leslie Picker contributed to this report.