Recent Trends in Chinese Economy Call Attention to Investment Risks
The Chinese Communist Party’s tightening grip on the economy is leading more and more people to see the risks involved in investing. Perth Tolle, the creator of the “Life + Liberty Indexes” and the operator of the “Freedom 100 Emerging Markets ETF,” expressed a preference for investing in emerging economies that prioritize freedom over China.
ETFs are exchange-traded funds.
Tolle manages the “Freedom 100 Emerging Markets ETF.” So far this year, her ETF has seen a 9% increase, with a total increase of over 43% since it began trading on May 23, 2019.
In an interview with CNBC’s “ETF Edge” this week, Tolle stated that her fund has never invested in China.
Tolle spent her childhood in Beijing. In 2004, she worked as a private wealth advisor at Fidelity Investments. She pointed out that all her clients were interested in entering the Chinese market.
“At that time, personally I didn’t want to invest in China, but everyone else did,” she said. “Later, I had a client from Russia who said, ‘I don’t want to invest in Russia because it’s like funding terrorism.’ Look at how prescient that statement is today. So, my own experiences and those of some of my clients ultimately led me to this idea (of not investing in China).”
Tolle emphasized that she prefers investing in emerging economies that prioritize freedom.
“Without freedom, the economy will be constrained,” she said.
In a previous interview with “7investing,” consultant Matt Cochrane, Tolle explained why she avoids investing in authoritarian countries like China and Russia. She said, “The risk of authoritarianism is real and persistent. I think people just choose to ignore it.”
She noted that there are significant differences in the level of freedom among emerging market countries. There are countries and regions like Taiwan, South Korea, Chile, Poland, which are very free, and others like (Communist) China, Russia, Saudi Arabia, Egypt, Turkey, which are very unfree.
“We believe that in the long run, markets of free countries will perform well because they have more sustainable growth, not growth driven by debt,” she said.
According to CNBC, ETF investor Tom Lydon, former head of VettaFi, also views China as a risky investment.
“If you look at the emerging markets… from a performance standpoint, markets without China have lower volatility and perform better,” Lydon said.
Carson Block, founder of Muddy Waters Research, has long been skeptical of the Chinese stock market and is one of the most famous short sellers of Asian country stocks. On October 20, 2024, in an interview with Bloomberg TV, he again emphasized that the Chinese stock market is “not investible.”
Muddy Waters gained fame for exposing fraudulent activities of some Chinese companies. He stated that geopolitical risks and unreliable corporate accounting are the main reasons for his cautious approach towards China.
He further expressed that Chinese companies’ “numbers are not trustworthy,” and there is a risk of “military conflict between China and Taiwan.”