This episode explores the relationship between freedom and market performance in emerging economies, specifically focusing on the limitations of traditional emerging market ETFs. Against this backdrop, Perth Tolle, founder of Life and Liberty Indexes, introduces her Freedom 100 EM Index, which incorporates freedom metrics from the Cato and Fraser Institutes to weight country allocations. More significantly, the discussion delves into four key autocracy risks—misplaced priorities, capricious government interference, sanctions risk, and inconsistent accounting practices—illustrating these with examples like Tencent's data sharing with the Chinese government and the nationalization of Egypt's largest dairy company. For instance, Tolle highlights the outperformance of her freedom-weighted strategy compared to the MSCI Emerging Markets Index, attributing this to successfully avoiding crises in China and Russia. As the discussion pivoted to investment opportunities, Tolle emphasized countries like Chile and Taiwan for their high freedom scores and potential to benefit from the reshoring trend, contrasting them with the risks associated with Chinese equities and the ongoing US-China tensions. This means for investors that a freedom-weighted approach can offer both higher returns and reduced risk in the volatile emerging markets landscape, aligning with the growing millennial focus on values-based investing.
