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To: John McCarthy who wrote (34420)	2/27/2007 11:14:34 PM
From: John McCarthy	Respond to of 78428

FOCUS China's sell-off slams ETFs Correction in highflying, emerging markets funds highlights sector's risk PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy John Spence, MarketWatch Last Update: 6:38 PM ET Feb 27, 2007 BOSTON (MarketWatch) -- Exchange-traded funds tracking stocks in Asia and the Pacific traded sharply lower Tuesday after China's markets were routed on fears over slowing economic growth. Some of the ETFs hit hardest Tuesday by the global pullback had been recent highfliers, which underscores the volatility often seen in emerging markets. Chinese stocks lost almost 9% Tuesday as investors took profits on speculation the country's leaders may introduce measures to slow the country's booming economy at an upcoming government meeting. The selling spread into other emerging markets Tuesday as well as exchanges in the U.S. and Europe. Among all ETFs, some of the biggest losers Tuesday in U.S. trading tracked Asian stocks. The iShares FTSE/Xinhua China 25 (FXI : iShares:FTSE/Xinhua News , chart, profile, more Last: 95.00-10.40-9.87% 8:09pm 02/27/2007 Many ETFs listed in the U.S. that track foreign stocks continue to trade domestically even though the underlying overseas markets are closed due to time differences. The Malaysian basket had been the top-performing ETF year to date with a 19.3% gain, according to investment researcher Morningstar Inc. Tom Lydon, founder of newsletter ETF Trends, said 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," Lydon said in an interview. "When there are these big run-ups, these types of corrections aren't unexpected." He said he likes the long-term growth opportunities in emerging markets, and ETFs are cheap and diversified tools for getting exposure. However, he cautioned investors need to understand the risks of investing in fickle emerging markets, keep the positions a relatively small percentage of the portfolio and to use stop-loss orders to limit losses. ETFs are baskets of securities that trade on exchanges like stocks. Lydon said he'd been recommending a position in the iShares ETF tracking China, but sold it when the market pulled back in January on bubble fears. "It's not clear if today's fall is a buying opportunity or a signal to avoid these ETFs," he said. "It seems a lot of the sell-off is emotional." Morningstar analyst Sonya Morris agreed the big gains emerging markets have served up the past few years have blinded some investors to their volatility. "It's still a risky area and investors should expect bumps in the road like this on occasion," she said. Morningstar has a monthly publication penned by Morris with lists of ETFs to buy and avoid. In the latest installment, the analyst said she recommended shunning a popular emerging markets ETF, iShares MSCI Emerging Markets (EEM : iShares:MSCI Emerg Mkt News , chart, profile, more Last: 107.90-9.55-8.13% Bob Doll, global chief investment officer of equities at money manager BlackRock Inc., called the market downturn in China "primarily a local event," and doesn't expect the sell-off will have a global, long-term impact. "However, we have been indicating for some time that investors have enjoyed many months of gains in stock markets and that global equity markets may be due for some sort of near-term pullback, consolidation or correction," Doll wrote in a report Tuesday. The iShares MSCI Emerging Markets in Tuesday trading lost 8.1%, iShares MSCI Taiwan (EWT : iShares:Taiwan News , chart, profile, more Last: 13.66-0.75-5.20% marketwatch.com