With concerns that China’s rapid economic expansion could slow down in 2012 and hit economies and commodity prices, European hedge fund managers are positioning themselves accordingly reported Reuters this week. Managers are building short positions on equity markets, the RMB, through to buying CDS on companies with exposure to China: something that Hugh Hendry found great success with last year by buying CDS of Japanese companies. Pedro de Noronha, managing partner at London hedge fund Noster Capital was quoted on Reuters as saying they were “quite sceptical and worried” as China was “an inflated castle in the air”. Aside from recent cases of fraud and the country’s real estate market, which themselves are key issues, it’s the fact that China needs a healthy US consumer, which it’s not getting right now, that could create “a severe leg-down in markets” said de Noronha. His firm is using futures to short Chinese H-shares and also has a short position on the Chinese RMB. Another manager, Victor Pina, CIO of London-based Javelin Capital, was said to be shorting natural resources stocks in Hong Kong as well as in Brazil and Russia. He was quoted as saying: “I think China will slow down. China has no alternative to what it is doing, which is putting the brakes on credit expansion.”