For D1 Capital, the primary risk in China isn't economic but political. The government's ability to arbitrarily influence resource allocation, punish successful companies, and eliminate entire sectors without due process creates an unacceptable level of uncertainty for capital allocators, regardless of how cheap valuations become.

Contrary to the growth narrative, the MSCI China index returned just 3.4% over the last decade with over 24% volatility. During the same period, the emerging market ex-China index delivered a higher return of 4.8% with significantly lower volatility (17.5%), highlighting structural headwinds in China for investors.

Countries like Poland, which transitioned to capitalism relatively recently, are under-followed by global investors. This creates opportunities to find "boring compounder" stocks, such as supermarket chain Dino Polska, at attractive valuations. These businesses are often run by outsider CEOs and are insulated from global hype cycles like AI.

While investing in government-supported sectors like AI and semiconductors seems safe, it's a long-term risk. A government's priority is political—winning elections and preserving jobs—which will eventually conflict with an investor's goal of maximizing profit, leading to poor returns as seen in China.

China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.

Instead of trying to have a view on everything, Herb Wagner's team embraces not knowing. They actively avoid complex situations, like Chinese property developers, where risks are opaque and dependent on government action. This discipline of knowing what you don't know is central to their strategy.

Crossmark Global Investments' analysis reveals that while excluding sectors for ethical reasons causes short-term performance deviations, long-term returns (over 1, 3, 5, and 10 years) are comparable to unscreened portfolios. Strong fundamental analysis remains the primary performance driver.

The Freedom 100 Index creator cites China's one-child policy, which she grew up under, as a key insight. The policy created a massive demographic crisis, proving how a single authoritarian decision can inflict long-term, unrecoverable damage on a country's market potential and society.

The popular "BRICS" acronym directs investor attention toward large, often autocratic, economies. This creates a blind spot for freer, high-potential markets like Chile and Poland. These countries receive minimal weight in traditional indices but offer significant growth opportunities without the associated autocracy risk.