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Hedge funds have amassed a record number of short positions against European stocks, in a bet that the region will be hard hit by the economic fallout from the Iran war.
The number of short disclosures against stocks listed in Europe increased to nearly 12,000 in the first three months of this year, according to figures from data provider Breakout Point. That is the highest level since short disclosure rules were introduced in 2012.
Short positions are required to be disclosed when they reach 0.5 per cent of a company’s issued share capital. The figures do not equate to 12,000 individual short positions as they could include funds adjusting positions multiple times, but they are a proxy for short-selling activity.
Europe “looks shortable in a time of crisis,” said Andreas Bruckner, a European equity strategist at Bank of America, pointing to the ongoing war in Iran. The region’s stocks — previously the “key beneficiary” in “a trade of global growth” — were now “most exposed to the energy crisis that is brewing”, he added.
Hedge funds AQR Capital Management and Two Sigma Investments are among those that have raised their bets against the continent’s equities, as the war against Iran sends shockwaves through global financial markets.
AQR Capital Management currently has 128 disclosed shorts in European-listed stocks, compared with 54 a year ago, while Two Sigma Investments’ disclosed shorts have risen from three to 85 over the same period, according to Breakout Point. The rise in short positions does not necessarily imply a negative view of the European market as a whole, as some funds balance their bearish bets with long positions in other stocks.
Brent crude has surged 50 per cent to around $110 a barrel since the start of the war, while TTF, the European natural gas benchmark, is up more than 65 per cent, prompting fears of an energy shock that could fuel inflation and damage economic growth. As a net energy importer, Europe is viewed as much more vulnerable than the US, a net exporter.
The continent-wide Stoxx Europe 600 index has fallen more than 6 per cent since the start of the war, erasing most of its gains for the year.
London-listed Wizz Air became Europe’s most shorted stock last month, after warning that the war in Iran would wipe out its profits this year due to the impact of plane disruption and higher fuel prices.
Short interest in the budget airline has nearly doubled since the start of the war to 15 per cent, while its shares have tumbled by more than a quarter over the same period. Rival airline easyJet has also become a short target.
Some funds see companies exposed to the health of the UK economy as vulnerable.
Citadel is among the hedge funds that have increased bets against British brickmaker Ibstock — a longstanding short target due to the UK’s low rate of housebuilding — in recent weeks, while DE Shaw has disclosed a short position in the company, taking total short interest to more than 12 per cent. The Iran war has intensified the sector’s woes, given its exposure to interest rate volatility.
“The UK seems to be a pretty easy target for short sellers,” said Emmanuel Cau, head of European equity strategy at Barclays. It is “always an area of scepticism and negativity for investors”, he said, adding that the war’s impact on energy prices and interest rates had “revived concerns about the UK consumer and cost of living crisis”.
AI disruption fears have also hit some European equities, as short sellers target those viewed as likely losers from the technology.
UbiSoft Entertainment, the video game maker behind Assassin’s Creed, became one of the region’s most shorted stocks after it announced a restructuring and cancelled or delayed upcoming games.
AQR Capital Management, Two Sigma Investments and Citadel declined to comment. DE Shaw did not respond to requests for comment.