Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Hedge funds nurse losses on bets against Greek, Italian shares

Published 15/06/2020, 12:35
Updated 15/06/2020, 12:56
© Reuters. Woman in a face mask is seen in front of the Italian Stock Exchange in Milan

© Reuters. Woman in a face mask is seen in front of the Italian Stock Exchange in Milan

By Maiya Keidan

LONDON (Reuters) - Some hedge funds that bet against a series of Greek and Italian companies are nursing losses after the European Union's breakthrough plan for a 750 billion euro (£673 billion) recovery fund sent stock markets surging across southern Europe.

The funds, which include Citadel, Marshall Wace and AKO Capital, still hold short positions on companies such as Italy's Banco BPM and Greece's Piraeus Bank ahead of a June 18-19 EU summit to debate the recovery fund, aimed at helping European economies recover from the impact of the coronavirus pandemic.

Essentially a bet that the price will fall, shorting involves borrowing shares then selling them in expectation of being able to buy them back cheaper and pocket the difference.

Early last month, shorting Italian and Greek shares may have seemed like a no-brainer; heavily dependent on tourism, their economies are expected to contract 9-13% this year. Italy has also witnessed 34,000 coronavirus deaths.

But the May 18 Franco-German proposal for the recovery fund upended those bets, lifting stock markets across southern Europe. The moves accelerated after the European Central Bank upped the size of its emergency stimulus programme on June 4.

Graphic: Greek and Italian shares have rallied sharply since May 18 - https://fingfx.thomsonreuters.com/gfx/mkt/dgkplwyryvb/shorts.PNG

Shares in Banco BPM have climbed 10.8% since May 18, while Monte Dei Paschi di Siena is up 25.7%.

Many stocks were off limits to hedge funds before May 18, however, when six European states, including Italy and Greece, scrapped short-selling bans introduced in March.

"Greece and Italy are the main beneficiaries of (the) EU bond and ECB quantitative easing," said Louis Gargour, chief investment officer at hedge fund LNG Capital, who was not betting against the two countries.

"The expression 'Don't fight the Fed' can also be extended to 'Don't fight the ECB'."

Filings with regulators show Marshall Wace and Citadel had each taken out five short bets in Italy; aside from the banks, targets include oil and gas contractor Saipem and Italian luxury leather goods company Salvatore Ferragamo. All have so far worked against the funds.

Hedge funds had 20 outstanding shorts in Italian companies and seven short positions in Greek companies, filings show.

Those trades could still work, say, if the proposal fails to meet approval from the EU, or if markets are hit by another wave of COVID-19 infections that force economies to lock down again.

"In case of a new coronavirus crisis, economies of Italy, Spain and Greece will be the hardest hit and we will probably be targeted as new markets for shorts," said Luca Rubini, managing director at investment firm Fidentiis in Milan.

European short-selling laws require only bets of 0.5% and above of the total number of shares to be disclosed. It is also unclear if all the hedge funds have offset those trades with long positions.

A spokeswoman for Marshall Wace said the investor was currently net long on Italian and Eurozone banks, net long Italy and had a small net long position in Greece.

London-based Oceanwood Capital Management declared a short position of 0.6% of shares in Greek lender Piraeus Bank on May 21.

Lansdowne, which has a bet of 2.8% against Piraeus Bank, last month took out bets of 0.9% against Greece's Eurobank Ergasias, 1% of Alpha Bank and 1.7% of Public Power Corporation.

Shares in Piraeus, Eurobank Ergasias and Public Power have rallied between 30% and 40% between May 14 and June 12 while Alpha Bank rose 17.7%.

© Reuters. Woman in a face mask is seen in front of the Italian Stock Exchange in Milan

Oceanwood, Lansdowne, AKO Capital and Citadel all declined to comment.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.