Despite a nearly 50% surge in its share price in less than a month, short sellers targeting POP MART have not retreated. Instead, they are creating an extremely precarious standoff.

According to the latest data from S3 Partners, POP MART's Hong Kong-listed stock has experienced a significant recent rise, yet this has not deterred short sellers, with no clear signs of a short-covering wave emerging so far.

Conversely, under S3 Partners' short squeeze risk scoring system—which is calculated based on recent mark-to-market returns—POP MART's risk score has reached the maximum level of 100. This typically indicates that if the share price continues to climb, short sellers could face immense pressure to cover their positions, potentially triggering a chain reaction of explosive price gains.

However, the data reveals a counterintuitive phenomenon. Leon Gross, Head of Research at S3 Partners, noted: "Although the score is high, technically, a short squeeze has not yet occurred in this stock because there has been no significant net covering; in fact, looking at securities lending data, we have seen almost none."

This standoff has resulted in an extreme market structure. Real-time data shows that short positions in POP MART are still steadily increasing, with the proportion of short interest relative to free float having surged sharply from 2% to 16%. At the same time, long position data and hedge fund holdings have also seen modest increases.

Leon Gross commented on this situation: "The current short size is much larger than institutional long holdings, which is not a common occurrence. This is essentially an extremely crowded one-way bet that has yet to back down."

This structure implies that if long-side forces strengthen even slightly, or if the company releases positive news, the 16% short interest would have nowhere to retreat, potentially forcing a stampede of buy-to-cover actions.

The stock fell as much as 5% on Wednesday and was already in technically overbought territory earlier in the week, indicating that price volatility is intensifying amid fierce battles between bulls and bears.

**The Short Sellers' Logic: Betting on Overseas Growth Stalling**

Behind this bull-bear confrontation lies a significant divergence in market views on POP MART's future growth trajectory. Although company management has actively supported the share price through measures like share buybacks, short sellers remain skeptical about the company's performance in key overseas markets.

Traces of this divergence were evident as early as the end of January this year. At that time, following POP MART's strongest rebound in five months, short interest climbed to its highest level since July 2023. Melinda Hu, a Bernstein analyst covering Asian consumer stocks, pinpointed the short sellers' primary rationale at the time: a cooling trend in key overseas markets.

Melinda Hu stated: "Significant short interest from the US market remains because sales trends there continued to decelerate in January." For short sellers, the rising share price, not being driven by fundamentals, presented an opportunity to increase short positions. Melinda Hu analyzed: "Since this week's stock rebound was not driven by fundamental factors, I suspect they [short sellers] might use this opportunity to add to their positions."

Even at the end of January, when POP MART's management conducted a HK$347 million (approximately US$45 million) share buyback—the most aggressive market-supporting action in nearly two years—it failed to shake the conviction of short sellers. Data from that time showed shorted shares skyrocketing from 44 million to 60 million within a week.

Company CEO Wang Ning, in an interview with Xinhua News Agency, also attempted to boost confidence, stating that intellectual property (IP) businesses typically experience many cycles with ups and downs, but he expressed belief that the company's IP would continue to grow.

**Is Extreme Volatility Imminent?**

However, this tug-of-war between "company defense" and "short seller offense" is escalating. On one side is management's demonstration of "ample financial resources" and determination for buybacks; on the other is short sellers' concern about weakening demand for popular toy lines like Labubu.

Now, with S3 Partners' "100-point" risk warning flashing red, the market is at a critical juncture. The question remains: will short sellers ultimately be forced to exit due to margin pressure, triggering a surge, or will deteriorating fundamentals finally puncture the share price bubble? The situation is poised on a knife's edge.