Germany overtakes UK as most shorted European market

Germany overtook the UK to become the most shorted country in Europe in September, despite heightened volatility in the UK.

Data compiled by SEI Novus covering €30bn in short positions from over 150 managers found that German short exposures stood at 25.5%, compared to the UK's 20.2% and number three Sweden's 11.4%. 

Both the UK and Germany have consistently been in the top two countries with the greatest short exposures since February of this year.

The data also found that industrials continue to be most shorted sector in Europe, making up 24.5% of total short activity, up from 23% in August.

Financial short interests also spiked in September to 11%, up from 7.1% in August.

SEI Novus found that Bridgewater has continued to sit as the manager with the greatest short positions in Europe, accounting for 19.3% of short positions, up from 16.3% in August.

The other top short managers also remained the same as in August, with Bridgwater followed by Marshall Wace at 16% and BlackRock Institutional Trust Company NA at 7.2%.

Meanwhile, the most shorted European stocks by size were revealed as ASML at 3.7%, C&C Group at 3.5%, SAP at 2.2%, Koninklijke Philips at 2.1% and Rentokil Initial at 2%.

SEI Novus noted that C&C, an Irish drinks company that owns brands such as Magners cider, has consistently been among the top five most shorted stocks since June 2022.

Michelle Silsbe, director at SEI Novus, said: "Turbulence in European markets has driven increasing short activity, as investors seek returns in an increasingly tough market and the economic outlook darkens.

"In September, the UK's political and economic troubles were overshadowed by increasing short interest in Germany, which faces a tough winter as the war in Ukraine and rising energy costs impact the industry.

"Short interest is also revealing pressure points in sectors adapting to possible headwinds, with the prospect of recession continuing to be felt in industrials, with funds increasing their positions in anticipation of weakening demand, and in financials, as some institutions struggle to tackle the impacts of rising inflation and rates."