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Alternative Market Briefing

Macro hedge funds, ETFs to short euro after Greece’s referendum

Monday, July 06, 2015

Komfie Manalo, Opalesque Asia:

The European stock indexes are expected to drop significantly this week after the overwhelming "no" vote by Greece on its bailout referendum Sunday, that is seen by many as a prelude to the country’s exit (Grexit) from the eurozone.

But while the move could bite some sectors, the "no" vote could actually provide an opportunity for macro hedge funds and exchange traded funds (ETFs) and sees the Grexit as the opportunity for the contrarian trade of the year, reported CNBC.

Brian Kelly of hedge fund BKCM told his clients, "The big trade has been to go long European equities and short the euro." He explained that investors will start unwinding their trade as the European equities fall and short the euro.

"It is counter-intuitive, but if the strength continues (in euro/dollar from last week) everyone will be wondering why the euro did not fall. This is why," he told CNBC.

Pair trading is a popular strategy amongst macro hedge fund managers, as well as U.S. ETFs that hedge out currency risk by betting against the euro while buying European equities.

Data released by Goldman and Sachs indicated that for every one percent drop in the Stoxx Europe 600 Index, at least six billion euro needs to be covered.

On Sunday, 61% of Greek voters delivered a strong "no" in a crucial bailout referendum that sent shockwaves across the European Union, said ......................

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