The U.K. (FTSE All Share Index - ASX INDEX) posted an +1.5% gain in the first quarter of 2026, but short selling increased by $6.7 billion during the rally. Total short interest in the region increased by $5.2 billion to $54.9 billion which consisted of the $6.7 billion of increased short selling partially offset by a $1.5 billion decline in the mark-to-market value of existing short positions.

In the second quarter, short sellers lifted their foot from the petrol pedal and total short selling only totaled $414 million in the quarter as the broad U.K. market rallied +2.9%. Even though short sellers stood on the sidelines, total short interest in the region still increased by +$2.9 billion to $57.8 billion. The increase was made up of the $414 million of new short selling and an additional $2.5 billion increase in the mark-to-market value of existing short positions.

U.K. short sellers were up +$1.4 billion in mark-to-market profits, +2.6%, in the first quarter but are down -$3.1 billion, -5.5%, so far in the second quarter which partially explains the reversal of the short selling that we saw in the earlier part of 2026.

Every sector in the U.K. saw increased short selling in the first quarter except for the Utilities sector. The Financials, Information Technology & Industrials sectors with the most short selling.

• In the Industrials sector, the largest increases in short selling occurred in RELX PLC (REL LN), Rolls-Royce Holdings PLC (RR/ LN), BAE Systems PLC (BA/ LN), and EasyJet PLC (EZJ LN).

• In the Consumer Discretionary sector, the largest increases in short selling occurred in Pearson PLC (PSON LN), Burberry Group PLC (BRBY LN), Greggs PLC (GRG LN), and Kingfisher PLC (KGF LN).

• In the Consumer Staples sector, the largest increases in short selling occurred in Diageo PLC (DGE LN), Associated British Foods PLC (ABF LN), Marks & Spencer Group PLC (MKS LN), and Coca-Cola HBC AG (CCH LN).

• On the short covering side, in the Utilities sector, the largest increases in short covering occurred in National Grid PLC (NG/ LN), Seven Trent PLC (SVT LN), Pennon Group PLC (PNN LN), and Telecom Plus PLC (TEP LN).

The second quarter is seeing a significant slowdown in U.K. short selling and actual short covering in some sectors.

• In the Health Care sector, the largest increases in short selling occurred in AstraZeneca PLC (AZN LN), Smith & Nephew PLC (SN/ LN), GSK PLC (GSK LN), and Convatec Group PLC (CTEC LN).

• In the Financials sector, the largest increases in short selling occurred in HSBC Holdings PLC (HSBA LN), Legal & General Group PLC (LGEN LN), London Stock Exchange Group PLC (LSEG LN), and Admiral Group PLC (ADM LN).

• In the Consumer Discretionary sector, the largest increases in short selling occurred in Pearson PLC (PSON LN), Barratt Redrow PLC (BTRW LN), Taylor Wimpey PLC (TW/ LN), and Kingfisher PLC (KGF LN).

• On the short covering side, in the Communication Services sector, the largest increases in short covering occurred in Autotrader Group PLC (AUTO LN), BT Group PLC (BT/A LN), WPP PLC (WPP LN), and Zegona Communications PLC (ZEG LN).

• In the Consumer Staples sector, the largest increases in short covering occurred in Marks & Spencer Group PLC (MKS LN), British American Tobacco PLC (BATS LN), Tate & Lyle PLC (TATE LN), and Coca-Cola Europacific Partners PLC (CCEP LN).

• In the Industrials sector, the largest increases in short covering occurred in RELX PLC (REL LN), Rentokil Initial PLC (RTO LN), BAE Systems PLC (BA/ LN), and Experian PLC (EXPN LN).

After heavy short selling in the first quarter where U.K. short sellers were increasing exposure in every sector besides Utilities, we are seeing rotational short selling and short covering in the second quarter. Shorts are still betting heavy that the Financials sector will underperform but reducing exposure in Communication Services, Energy and Consumer Staples. The FTSE All Share Index was up 1.5% in the first quarter but shorts managed to eke out a 2.6% profit in hostile waters, but they underperformed in the second quarter, down -5.5% while the index was up only +2.9%.

As the market wobbles during the conflict in the Gulf, we should continue to see rotational short selling and covering as portfolio managers rejigger their exposure due to varying sector performance. Shorts have been selling in the Consumer Discretionary and Financials sectors and incurred increased mark-to-market losses in the second quarter and are shorting Health Care profitably as prices in the sector have slid. Expect more volatility in the short side – but not wholesale covering as hedge funds continue to increase portfolio leverage else, they fall behind average market performance – FOMO will force portfolio managers to search for sectors and individual shorts to hedge their ever-growing long exposure.

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