China has left a lasting impression in many international portfolios, making up 10% of the MSCI Emerging Markets Index and is the basis for popular exchange traded funds (ETFs) such as the iShares MSCI Emerging Markets (EEM) and iShares FTSE/Xinhua China 25 Index (FXI). Over the past few years several other ETFs and mutual funds have added to their stakes in China, so a drop in China will impact factors across the board.
Market analysts are paralleling the Shanghai-based markets rapid ascent to the Nasdaq’s explosion in 1999, followed by its demise and subsequent bursting bubble. Jonathon Burton of the Dow Jones Newswires reports China’s government is openly determined to keep this bull in China’s shop under control. Without deliberate intervention the market could inflate into a Nasdaq-like bubble. Some say Chinese leaders are pragmatic so they will do things gradually to minimize the impact on global financial markets.
For reasons like the aforementioned, it is imperative to set a stop-loss. We sold when FXI went 8% off its high.