$160 billion hedge fund exec: 'We'll probably have a much bigger shakeout coming'

Bridgewater AssociatesBridgewater’s co-CIO Bob Prince.
  • Global markets dived during a rocky week for trading last week.
  • Bridgewater Associates’ co-CIO: “We don’t think this shakeout will be over in a matter of days.”
  • Fears over tightening central bank policy are expected to drive more volatility.

LONDON – One of the most senior figures at the world’s biggest hedge fund is predicting more volatility in global markets after a turbulent few weeks for global markets.

Bob Prince, the co-chief investment water of Bridgewater, told the Financial Times in an interview published on Monday:“There had been a lot of complacency built up in markets over a long time, so we don’t think this shakeout will be over in a matter of days. We’ll probably have a much bigger shakeout coming.”

The comments come after a choppy week for global markets. The Dow Jones Industrial Average suffered its biggest points drop in history on Monday before rebounding strongly. However, the slump resumed on Thursday as the Dow entered correction territory.

The sell-off in the US, which spread to Asian markets and Europe, was sparked by fears that the Federal Reserve could be about to raise interest rates again, suggesting an end to the easy money central banking policy that has propped up businesses and growth in the post-crisis era.

Prince told the FT: “Last year equity markets had a free run. But this year we are going from central banks contemplating tightening policy to actually doing it. We will have more volatility as we are entering a new macroeconomic environment.”

US-based Bridgewater is the world’s largest hedge fund, with $US160 billion under management. Prince oversees the investment of this pot alongside the firm’s founder Ray Dalio.

Michael Hewson, the chief market analyst at CMC Markets, said in an email on Monday morning: “US, as well as global equities, have undergone their worst fortnight this decade.

“For a market that has enjoyed steady gains and fairly low volatility over the course of the past two years, the steepness of the falls speaks to a complacency that has been prevalent for a while now and which appears to have been shattered in the wake of a surge in volatility.

“How this plays out over the coming days depends on whether the rebound we saw on Friday can translate into some form of a base for a continuation of the uptrend that has been in place for the last nine years. This may well depend on whether we see further increases in bond yields or a rise in interest rate expectations from other central banks around the world.”

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