One of Australia’s leading hedge funds believes the viral Labubu craze is about to come crashing down, and is looking to capitalise.

Arnott Capital recently informed its investors of its decision to short, or invest against, the stock of Pop Mart, a company famous for its dolls, anticipating a drop in its share price.

The China-headquartered company, which is listed in Hong Kong, has seen its market value soar from around $10 billion in 2020 to over $65 billion currently, largely due to high demand for its Labubus dolls, which vastly exceeds the available supply.

This surge in popularity has been fueled by social media buzz around the dolls, with endorsements from celebrities like David Beckham, Kim Kardashian, and the K-pop group Blackpink, as well as their “blind box” packaging, leaving customers unaware of the doll’s version until purchase.

The collectibles, priced between $30 and $60 at retail, have reached sale prices much higher on secondary markets, with one doll recently selling for $US10,500 ($16,250).

However, according to Arnott Capital, the craze is showing signs of petering out.

“The challenge with shorting companies we categorize as ‘hype cycle’ or ‘fad’ stocks lies in the difficulty of predicting when their popularity will wane, leaving us trying to gauge an indefinite timeline,” the company explained to investors.

“However, we believe that catalyst is now unfolding in real time across the internet…

“In June, the re-sale prices of Labubus peaked and continued their trajectory downwards.

“We anticipate this will significantly threaten the demand seen in late 2024 and early 2025, which could lead to unsold inventory and an oversaturation of the market.”

Arnott Capital drew comparisons to the Hello Kitty craze in the early 2010s, when the share price of maker Sanrio surged some 700 per cent before plummeting in the space of a couple of years.

“We believe the Labubu doll is following a similar hype cycle, only accelerated by the unique feature that Labubu dolls are acquired via ‘blind boxes’… this has, in our opinion, created a pseudo lotto,” it wrote.

High demand and low supply has resulted in scalpers buying the dolls to flip onto the resale market for a profit, and the creation of websites that allow collectors to make bots to buy them.