Exchange Traded Funds (ETFs) tracking Asia and Pacific regions traded lower today after Chinese markets dropped nearly 9% due to investors taking profit on speculation there may be a slowdown in the country’s booming economy.  The selling spread into other emerging markets, as well as in the U.S. and Europe, reports John Spence of MarketWatch.

The pullback highlights the risk and volatility of emerging markets funds.  China and emerging markets have had a great run the last three years, but more recently we’re seeing some quick downturns.  When there are these big run-ups, these types of corrections aren’t unexpected.  There is long-term growth opportunities in emerging markets and ETFs are cheap and diversified tools for getting exposure.  However, investors need to understand the risks of investing in fickle emerging markets, keep the positions a relatively small percentage of the portfolio and use stop-loss orders to limit losses.  It’s not clear if today’s fall is a buying opportunity or a signal to avoid these ETFs.  It seems a lot of the sell-off is emotional.

iShares FTSE/Xinhua China (FXI) lost nearly 10% and iShares MSCI Malaysia (EWM) fell 8%, triggering a sell of EWM for our clients.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.