A hedge fund made a 40% gain by calling the coronavirus sell-off and shorting stocks
- A Singaporean hedge fund had a moment straight out of "The Big Short" when it predicted the novel coronavirus would hammer markets and made a 40% gain on its flagship fund.
- Dymon Asia Capital shorted the S&P 500 and Chinese stocks after identifying worrying trends in "alternative data" such as Google searches, Chinese road traffic, flights, and test kits, Bloomberg reported.
- Dymon also bet on bonds to rise and the currencies of export-focused economies to drop, the Financial Times reported.
- "It was clear the market was underpricing the impact of COVID-19," Dymon boss Danny Yong told Bloomberg.
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A Singaporean hedge fund had a moment straight out of "The Big Short" when it predicted the novel coronavirus would cause a market meltdown, shorted the S&P 500 and Chinese stocks, and posted a 40% gain in its flagship $2 billion fund this year as a result, according to Bloomberg.
Dymon Asia Capital bet on markets to plunge after spotting red flags in "alternative data" such as Google searches in the US and daily measures of Chinese road traffic, flights, and the availability of test kits, Bloomberg said.
Comparing their levels to previous epidemics, Dymon realized that the coronavirus - which causes a disease called COVID-19 - posed a major threat and would likely spark a sell-off.
"It was clear the market was underpricing the impact of COVID-19," Danny Yong, Dymon's investment chief, told Bloomberg.
Dymon also bet on bonds to rise and the currencies of export-driven economies to drop, Yong told the Financial Times last month. The strategy fueled a 20% gain for its flagship Asia Macro Fund in February, he said. The fund is now up 40% for the year, Bloomberg said.
Yong underscored the scale of the coronavirus threat to the Australian Financial Review late last month. However, he doesn't expect indexes to fall much further because authorities are plowing billions into their economies.
"This is a health crisis leading to a crisis of confidence, leading to consumption collapsing, demand destruction and then an economic crisis," Yong said in the interview.
"I am not that bearish on the financial markets at this level because the central banks have reacted very quickly."
