The UK was the most shorted nation in Europe in August, according to SEI Novus data, accounting for 23.5% of total short positions, up from 22.6% in July, followed by Germany and Sweden. 

The UK and Germany have remained among the top two shorted countries since February 2022, according to the data, with Germany now making up 21.8% of short positions as of August 31, down slightly from the 22.2% July figure.

Andrea Gentilini, head of SEI Novus, said that the data implies that confidence in the UK economy "has not returned as inflationary pressures weigh and as the prime minister takes on a host of challenges".

Short sellers bet against UK retail stocks amid income squeeze

Short-sellers targeted industrial stocks over the month, accounting for 23% of total short activity in Europe. On 18 August, the sector reached its highest short level in two years at 26.6%, as investors bet on declining productivity amid a tight squeeze on incomes.

Consumer discretionary lagged slightly behind, accounting for 18.9% of registered European short positions, while communication services ended the month at just 5.4%, marking a continuation of improved outlook for the sector which began in January.

The dataset, which covers over €30bn in short positions from more than 150 managers, did reveal overall short positions declined over the month, down to 483 from 452.

Short sellers turn attention to fast fashion

"As we come to the end of Q3, managers are looking closely at the stocks which have the greatest exposure to the unfolding downturn," said Gentilini.

"With households and businesses tightening their belts over the coming months, shorting activity in industrial stocks responsible for manufacturing and logistics has hit its highest level in two years as managers anticipate tightening demand."

Bridgwater Associates registered the largest positions held in the last week: Iberdrola S.A and Bayer Aktiengesellschaft, accounting for 1.4% and 1.1% respectively.

Europe's most shorted stocks were ASML, Rentokil, C&C Group, Kingfisher, Allianz SE, Arcelormittal SA, and Koninklijke Philips NV.