Recently, I noticed a rather interesting phenomenon: hedge funds are shorting European stocks with intensity at an all-time high. According to data from Breakout Point, the number of short disclosures for European-listed stocks in the first three months of this year surged to nearly 12,000. This is the largest scale never seen since Europe introduced short disclosure rules in 2012.

Why is this happening? The background is actually quite complex. The energy crisis triggered by the Iran war has become the main driver: Brent crude oil prices have jumped by 50% to around $110 per barrel, and the European natural gas benchmark TTF prices have also risen by more than 50% over the same period. Andreas Bruckner, a European equity strategist at Bank of America, said bluntly that in a crisis like this, the European market does indeed look like a good target to short. The reason is straightforward—Europe, as a net energy importer, is far more vulnerable than energy-exporting countries like the US.

Rising energy prices not only push up inflation but also drag down economic growth. This has prompted large hedge funds such as AQR Capital Management and Two Sigma Investments to accelerate their positioning. Data shows that AQR’s disclosed short positions in European-listed stocks jumped from 54 a year ago to 128, and Two Sigma is even more extreme—from 3 directly to 85. This increase in shorting intensity reflects institutional investors’ pessimism about Europe’s market prospects.

Judging by market performance, the STOXX Europe 600 index has fallen by more than 5% since the outbreak of the war, nearly wiping out most of the gains it had made this year. At the individual stock level, things are even more chaotic. Wizz Air, a low-cost airline listed in London, has become the most heavily shorted stock in Europe, with its short exposure nearly doubling to 15%, and its share price also dropping by more than a quarter. The company’s profits have been severely eroded due to soaring fuel costs and flight disruptions. Its competitor easyJet has also been targeted by short sellers.

What’s interesting is that shorting isn’t only aimed at energy-sensitive companies. Citadel has recently increased its short bets against UK brick manufacturer Ibstock, and DE Shaw has also followed up by disclosing short positions, pushing its total short exposure to above 12%. Emmanuel Cau, head of European equity strategy at Barclays, pointed out that the UK market has long been a target for bearish investors, and the war’s impact on interest rates and energy prices has again sparked concerns about the outlook for UK consumers.

In addition to the energy shock, the AI industry transformation is also accelerating the shorting of certain companies. After French game developer Ubisoft announced a restructuring and delayed multiple new games, it quickly became a major target for large-scale shorting in Europe. The market worries that traditional game companies like this may fall further behind amid the AI-driven transformation.

Overall, this wave of shorting European stocks reflects the market’s deep concerns about Europe’s economic outlook—war, energy crisis, interest rate risk, and industrial transformation. With these factors stacking up together, hedge funds are all stepping up their positioning with bearish short positions. This trend is worth continued monitoring.