London hedge fund giant Sloane Robinson learned the hard way last year that investors aren’t buying the idea that China can avoid a sharp downturn. Five of the firm’s six major portfolios within its Global Fund lost between 17.3 percent and 24.3 percent in 2011, according to a year-end letter sent to clients, and a blithely bullish bet on China was a big reason why.

In the letter, the firm, which now manages $5 billion, down from $8.1 billion under management at the beginning of 2011 and $15 billion at the end of 2007, blamed what it acknowledged was “very poor performance” on three factors — the aftermath of the March Japanese earthquake, an insufficient number of defensive investments and “a rosier view of China than has been warranted.”....

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