Hedge funds are making their biggest bet against European stocks in a decade, with short positions climbing to 11% of total hedge fund books according to Goldman Sachs Prime Services data. That’s not a subtle shift in positioning. It’s the kind of move that tends to precede either a dramatic vindication or an equally dramatic short squeeze.
Over the past six weeks, short sales have outpaced long buying at a ratio of 5.6 to 1. That pace represents the fastest buildup of bearish bets since the tariff shock that rattled global markets in April 2025. In English: for every dollar hedge funds have put toward buying European equities, they’ve placed more than five dollars betting those same stocks will fall.
What’s driving the bearishness
The catalysts here aren’t exactly a mystery. The Iran war and its cascading effects on European energy prices sit at the center of the trade thesis. Europe’s energy vulnerability has been a recurring theme since the continent scrambled to wean itself off Russian gas. Now, a fresh geopolitical shock is sending energy costs climbing again, and hedge funds are treating European equities like the obvious casualty.
Higher energy prices feed directly into two things Europe can’t afford right now: inflation and slower growth. The combination of those two forces has a name that makes economists wince. Stagflation.
