The Right and Wrong Way to Play China

If China gets hit hard over the lending "bubble" -- or something else -- and other emerging markets go with it, which they would, something like 30% in that space would cause the entire portfolio to drop a lot more than the broad market and a lot more than what might be tolerable, resulting in a sell-off at exactly the wrong time. Having a lot of anything is great while it's working, but it also sets the stage for panic selling at the low when it isn't. That mistake is avoided by moderate exposure. Putting 5% of a portfolio in China at the worst possible time wouldn't be ruinous but 30% might be.

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