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Benedicte Gravrand, Opalesque Europe:

Even is the financial world is highly inter-connected, hedge funds in Hong Kong face their own set of challenges, some of which shared by the industry at large, some not: some of those challenges are China's stimulus program, developments in the Western markets and regulations, stock frauds, investors lacking appetite for risks, markets correlation, a difficult fund raising environment, increased due diligence demands coming from investors, as well as demands for preferential treatments.

There are two potential risks that Hong Kong hedge funds are facing, according to Frank Brochin, CIO at StoneWater Capital, a fund of funds house specialised in Asia and based in New York; they are the phasing out of China's stimulus, and financial developments in the Western world.

"The Chinese authorities have put in place a very large economic stimulus program over the past two years; by some accounts, they injected the equivalent of 20% of the country's GDP into the economy in 2009 and probably about 10% this year," he explained at the recent Opalesque Roundtable in Hong Kong. "The challenge, now, is to progressively remove this stimulus without crashing the economy. We believe that the risks of policy mistakes are somewhat high, and if the Chinese economy were to miss its soft landing somehow, it would affect the entire region." (See our related Apr......................

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