China has been at the forefront of the news in recent weeks, as the stock market has gone down a substantial amount. With this news comes speculation from investors on how portfolios will be affected. To understand this issue, it is important to understand the make-up of stock markets in China, as well as the nature of a developing country in terms of regulation. Jim Parker, Vice President of DFA Australia Limited, recently published a very insightful article on the topic, “The China Syndrome,” which highlights the causes of the downturn in China as well as possible global repercussions. There are two significant points to take away. The first is that although China has an enormous economy, their stock market capitalization is only 2.6%–fairly limited exposure, and they heavily regulate who is able to invest in their stock market. The second is Parker’s perspective on how best to respond to the events in China–which quite simply is to stay properly diversified in your portfolio–reducing overall volatility.