Hedge funds are throwing their weight behind a notoriously risky trade that suggests Australia’s biggest banks, among the most profitable in the world, might be headed for trouble.

Rising bad debts, falling earnings and fears of a property market downturn have triggered a record number of "shorts" on Australian banks, which have long been stock market darlings because of their high shareholder returns. Short sellers borrow shares from other investors and then sell them in the hope of buying the stock back at a lower price, turning a profit.