In authoritarian regimes like China, companies must prioritize state interests over shareholder value. Perth Toll argues this means foreign investors are not just taking on risk, but are actively subsidizing the cost of a company's compliance with a government agenda that may oppose their own financial goals.
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.
Beyond screening countries for freedom, the Freedom 100 EM Index also excludes all state-owned enterprises (SOEs) at the security level. This double-layered approach reinforces its core philosophy of avoiding government interference in markets, applying the principle from top-down allocation to bottom-up stock selection.
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.