The shock to stock markets of hedge fund Archegos Capital Management’s reported $20bn fire sale of assets looks to be contained, but the fiasco could have broader fallout, said Allianz’s chief economic adviser Mohamed El-Erian.
Archegos, the family office of hedge fund manager Bill Hwang, is reportedly behind a $20bn sale of assets on 26 March, which has sent tremors through markets.
The family office is at the centre of a margin call that forced the liquidation of more than $20bn worth of shares on 26 March, according to reports on Bloomberg and other media outlets.
“It seems to be a one-off,” El-Erian told CNBC on 29 March. “It’s a one-off that had highly concentrated positions, had massive leverage and had a derivative overlay on top of that.”
“When you look at the fast-moving contagion this doesn’t look bad, it looks contained and that’s good news for the broader market,” he said.
However, El-Erian warned that the shock may have knock-on effects such as banks tightening lending rules.
Credit Suisse and Nomura have both said they face significant losses over the sale of around $20bn in US and Chinese stocks, with the Japanese bank saying it could face up to $2bn worth of exposure to a US client that it did not name.
Credit Suisse did not disclose a potential loss, but said it could be “highly significant and material to our first-quarter results”.
“Are we going to see a tightening in financial conditions? Are banks going to become more cautious?” “El-Erian said.
“I am not too worried about the fast-moving elements, keep an eye on the slow-moving elements,” he added.
El-Erian said events such as this were a symptom of the amount of cash in the system.
“There has been so much liquidity sloshing around the system that there has been excesses and we will get fender benders like this one, which is why it is so important to look at these slow-moving elements, but for now it looks contained,” he said.
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