Retail investors challenge hedge funds in European markets

Small investors in Europe are actively buying shares of defense companies that hedge funds have bet against. This situation recalls the "meme stock" frenzy of 2021 when retail traders targeted heavily shorted stocks like GameStop. Recently, companies such as Germany's Hensoldt and Renk Group, along with French satellite operator Eutelsat, have seen their stock prices rise sharply. This surge is partly due to expectations of increased military spending in Europe. Analysts note that retail traders, sometimes working together on social media platforms, have intensified these stock gains by purchasing shares that hedge funds have shorted. A strategist from Société Générale described this trend as a significant change in the European market. While the price increases are not as dramatic as those seen with GameStop, the tactics are similar. Hedge funds like Millennium and Marshall Wace have recently reduced their short positions on stocks like Renk, where shares have increased nearly 50% in just three weeks. Eutelsat's stock has surged by around 300%, causing short sellers to incur losses estimated at $187 million. Hensoldt saw a 40% rise, leading short sellers to lose about $110 million. Retail trading platforms are reporting a large increase in activity. For example, a German broker said it handled 70 times more trades in Eutelsat recently compared to the month before. This spike in trading comes as concerns rise over economic growth in the U.S., prompting some investors to look to European stocks. The European market has benefits due to Germany's plans to increase military and infrastructure spending. In contrast to the U.S., where short selling disclosure is limited, European regulations require investors to disclose short positions over 0.5%, making targets easier for retail investors. As traders react to Eutelsat's rally, hedge funds are quickly exiting other short positions to minimize losses.