An Australian hedge fund, Arnott Capital, is wagering that the global enthusiasm for Labubu dolls is unsustainable. The secretive fund, which invests on behalf of wealthy Sydney families, believes the toy’s popularity is nearing its peak, drawing parallels to the Hello Kitty craze of the 1990s. Arnott Capital manages approximately $150 million in its flagship hedge fund.
Labubu, a plush toy with distinctive features, is sold primarily through a mystery box model, driving up demand and resale values. This model has significantly boosted the share price of Pop Mart, the company holding exclusive rights to sell the toy. Pop Mart, listed on the Hong Kong Stock Exchange in 2020, has seen its shares surge over 570 per cent in the last year. Pop Mart designs, manufactures, and sells blind box toys and lifestyle products.
Arnott Capital intends to short Pop Mart stock, a strategy that profits when shares decline, arguing that the mystery box approach creates artificial demand akin to a “pseudo-lottery”. The fund anticipates an oversupply of Labubu dolls, leading to potential losses for Pop Mart. Despite this, not all analysts agree; Goldman Sachs has a neutral rating on the stock with a price target of $HK260, highlighting the strong consumer adoption of Labubu.
Other investors see opportunity in Pop Mart. SG Hiscock, a fund manager overseeing $3.3 billion in assets, has benefitted from the stock’s rally, pointing to expanding international demand and a broader trend of adult collectors fuelling toy sales. The company currently has 11 stores in Australia, and is scheduled to open a bigger outlet on Sydney’s Pitt and George Streets later this year.
