Investors and policymakers do not understand how deeply the new variant of coronavirus will damage the European economy, warns Element Capital, one of the world’s largest macro hedge funds.
Economic growth forecasts need to be lowered as the B.1.1.7 coronavirus variant spreads across UK borders, and continent-wide lockdowns could take months longer than current estimates, said Colin Teichholtz, the fund’s chief of markets. an interview.
“What you see in the UK today, you see across much of continental Europe, and I don’t think markets are[and]. . . policymakers really understand that, ”says Teichholtz. “Do policymakers understand this? Are people updating their second quarter economic forecasts to reflect a much worse outcome in terms of being able to reopen the economy? There is very little evidence of this in forecasts. ”
Element has emerged as one of the hedge fund success stories of the pandemic crisis, betting early on that the BioNTech and Pfizer vaccine would be more effective than the wider market had expected. The fund rebounded 18.8 percent last year and has never reported a year since billionaire Jeffrey Talpins launched the fund in 2005.
Mr Teichholtz’s pessimistic outlook stemmed from low vaccination coverage in the EU, with countries such as Germany, France and Spain lagging behind the vaccination rate in the US and UK.
British Prime Minister Boris Johnson warned Friday that the new variant may be more deadly and contagious than the earlier wave of the virus.
Christine Lagarde, president of the European Central Bank, described new virus variants from the UK and South Africa last week as “not so positive” factors that “may require tougher measures”. Still, Mr. Teichholtz pointed to her claim that the central bank’s forecasts for 3.9 percent growth in 2021 “remain broadly valid”.
“That set of assumptions has to deviate at least a quarter, and that’s another three months people stick around at home, people fall in love, a lot of companies … can’t function,” he added.
He warned that lockdowns could last until June if policymakers across the continent didn’t take more aggressive measures to contain the virus soon.
The senior member of Element’s portfolio management team, who joined the company in 2019 from BlueMountain Capital, declined to comment on the fund’s positioning. Last August, Mr. Talpins to clients that the fund was betting on a decline in European equities at the time and had taken a “significant short” position.
Mr Teichholtz said the rapid pace of vaccinations in the US would likely isolate the country from the same outbreak he envisions in Europe. Equity markets in both regions continued to rise this year, with the Euro Stoxx 600 benchmark slightly better than the S&P 500.
“I don’t think it’s crazy that markets looking out for a long time feel good … and certainly central banks have made it clear that at least for the foreseeable future they will keep the policy very easy,” he said.
“That said, I would say whatever your assumption is for global growth for the first half of 2021, you should probably lower that assumption a bit because of the potential impact in Europe.”