Trades to forget: the big market slip-ups of 2019

Argentine President Mauricio Macri. Photo / AP

Investors love to crow about the trades that make them money. They are less inclined to shout about the bets that tripped them up. Here is the FT's pick of the big banana skins of 2019.

Crying in Argentina

Just one month before Argentina's primary election in August, buying the country's debt was one of the most crowded trades among investors, according to JPMorgan. That proved to be costly when then-incumbent president Mauricio Macri was handed a decisive defeat by leftwing Peronist Alberto Fernández in preliminary voting, which all but sealed Macri's defeat in the election proper in October.

The loss set off a collapse in Argentine assets from which they have barely recovered. The country's once-vaunted century bond saw its value nearly halve to roughly 40 cents on the dollar in the immediate aftermath of the primary election.

Caught in the turmoil with other major investment houses was Michael Hasenstab, the star fixed-income fund manager at California-based Franklin Templeton. He saw paper losses of US$1.8 billion ($2.6b) in a single day at the height of the rout.

The situation has improved little since then, with Macri forced to announce soon afterwards that the country needed to restructure some US$100b of debt owed to the IMF, international investors and other creditors. Fernández has since appointed Martín Guzmán of Columbia University, a sceptic of austerity, to handle forthcoming negotiations.

Real pain for Brazil

Anyone who bought the Brazilian real at the end of 2018 has had a tough time. The currency has been a favourite in many strategists' outlooks for 2019, as a new government looked willing and able to unlock much-needed growth.

The real was also one of the few emerging-market currencies that investors had not already bought into — foreigners had not been buying significantly since 2010 — so the bet was that it was highly undervalued.

But it has turned out to be one of the world's worst-performing emerging market currencies this year, sinking by 6 per cent against the dollar.

"Everything looked conducive to a strong performance but that clearly didn't happen," said Sergi Lanau, deputy chief economist at the Institute of International Finance.

One problem has been the social unrest across Latin America, which rattled market confidence in Brazil.

"People are afraid growth will not pick up, that the social backdrop could become more agitated and that there'll be a demonstration effect — that what's happening around Latin America could spread to Brazil," explained Alberto Ramos, vice-president of emerging-markets research at Goldman Sachs.

Pension reforms took much longer to materialise than investors had hoped, while the central bank responded to lower interest rates in the US by slashing its own, making the real even less attractive to overseas buyers.

Nordic currencies: flat-packed

At the start of this year, one of the most popular calls in currency markets was for the Norwegian currency to climb. The country's central bank was set for multiple rate rises, the economy was performing well and the krone was cheap. Bank of America Merrill Lynch analysts predicted that it would appreciate more than 7 per cent by December 2019.

The Swedish krona offered a similarly compelling story, with the bank expecting the currency to notch some 4.5 per cent of gains in 12 months. A positive bet on the krona against the euro even made it to BNP Paribas' list of its best trade ideas for 2019, with the bank expecting a gain of nearly 7 per cent over the year.

It was not to be. Sweden's krona collapsed to its weakest level since 2009 while the Norwegian krone hit a record low against the euro. Norway's currency shed about 8 per cent of its value over the year, despite four rate rises and a robust economic performance.

"To say that the krone has been a disappointment would be an understatement," said Paul Meggyesi, global head of currency strategy at JPMorgan.

Beyond Meat goes off

Whether you consider this to have been among the best or worst trades of the year depends greatly on timing.

Investors in Beyond Meat have had a roller-coaster ride since the US plant-based meat-substitute company floated on Nasdaq in May, amid a burst of enthusiasm over protein alternatives. At today's levels, around US$76 a share, those lucky enough to have bought in at the initial public offering price of US$25 would be sitting on gains of more than 200 per cent.

But the shares started to lose their sizzle in late July, after hitting a high of almost US$240 a share.

Short sellers mounted an assault on the company ahead of the expiry of post-IPO lock-ups in late October, which allowed company insiders and early investors to cash in for the first time. But even for determined bears, it was a tricky situation to navigate as the lack of free-float meant the cost of borrowing stock soared.

"Beyond is the poster child for a profitable short thesis torpedoed by sky-high stock borrow costs," said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. While the trade itself might have made money, the cost of holding the position may have eaten up all the profits, he added. Emiko Terazono

Written by: FT reporters

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