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Hedge fund investing in China and India

The study was carried out by the Singapore Management University on hedge fund investing in China and India.

It sought to test the notion that these funds are simply closet indexers, which 'hug their respective indices: and load up market risks' with their huge exposure.

'Indian funds suffer from the lack of external market for shorts and have not been able to maintain as low a market exposure,' The Business Times quoted Shirin Ismail, director of Fullerton Fund Management which commissioned the study, as saying.

Such concerns have stemmed from a perceived lack of options to short-sell in these markets, the study said, referring to a technique used by hedge funds to take profit of a declining security price.

The study found that greater Chinese hedge funds do generate positive risk-adjusted returns, indicating that genuine asset selection skills exist among managers investing in them.

'The reason why they have been able to avoid closet indexation despite the difficulty of short-selling in the domestic Chinese market is because they have been able to short foreign-listed Chinese stocks such as Hong Kong, said Melvyn Teo, who conducted the study.

China hedge funds are not as risky as believed and have market exposures very similar to those in the United States, a study said on Wednesday.

'The results are encouraging because it is not true that most funds are blindly following the market,' he added. 

Source : Monsters and Critics

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