Short selling is an investment tactic by which a speculator borrows a financial instrument, such as a stock, and sells it in the hope of buying it back later at a lower price, thereby making a profit. Research firm Markit measures this short interest by calculating the amount of shares that are out on loan.
Markit said the market correction, sparked party by jitters over China's slowing growth, played right into the hands of short sellers.
"The steady increase in shorting activity in the leadup to Monday's selloff indicates that a growing portion of market participants were getting increasingly skeptical of the recent market environment; a position that proved well timed," the report, written by research analyst Simon Colvin, read.
The FTSE 100 index, London's main equity benchmark, lost 4.67 percent of its value on Monday alone, marking the largest selloff since March 2009, according to FactSet.
Most of the short positions were placed on companies with high exposure to commodities or emerging markets, sectors which have felt particular pain in recent weeks, Markit explained.
Supermarket groups WM Morrison and J Sainsbury topped the most-shorted list, each with 16 percent of their shares on loan, but Markit played down these levels given that their shares have been shorted for a number of years.
Instead, they highlighted companies with direct commodity exposure have seen dramatic jumps in short interest, including Royal Dutch Shell where the number of shares on loan spiked 881 percent year to date, to 4.4 percent.
Shorts on engineering firm Smiths Group, which has significant exposure to the energy industry, jumped a whopping 603 percent, bringing short interest on shares up to 4.5 percent, Markit said.
Weir Group, was the third-most shorted behind the supermarkets, following a 61 percent increase in short interest since January to 7.5 percent of shares on loan. The commodities slump have hit analysts' revenue expectations for the group, which services oil, gas and mining companies.
Other big names in the top 10 shorted stock list also include financial service firms like Aberdeen Asset Management and Hargreaves Landsdown, insurance company Admiral Group, miner Fresnillo and real estate group Intu Properties.
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