The most reliable predictor of long-term investment growth in emerging markets is a country's level of economic and personal freedom, not its market size.
Traditional market-cap weighted emerging market indices are fundamentally flawed because they systematically overweight autocratic countries, creating unacceptable geopolitical risk for investors.
China represents a uniquely poor investment due to absolute state control over corporations, unreliable economic data, and a demographic crisis caused by the one-child policy that is likely irreversible within our lifetimes.
A superior investment strategy for emerging markets involves screening countries based on quantitative freedom scores and completely excluding all state-owned enterprises.
Independent, non-governmental data sources like the Cato and Fraser Institutes are essential for investment analysis because data from state-influenced bodies like the World Bank can be compromised.
▶Critique of Conventional Emerging Market InvestingApr 2026
Perth Toll argues that standard emerging market indices, weighted by market capitalization, are fundamentally flawed. This method concentrates investment in large, autocratic nations like China, which he claims reached 41% of the MSCI EM Index during the pandemic, exposing investors to significant geopolitical and governance risks.
This theme suggests that investors relying on traditional EM ETFs may be unknowingly concentrating their risk in a few politically unstable countries, rather than achieving true diversification.
▶The 'Freedom' Investment ThesisApr 2026
The core of Toll's philosophy is that countries with higher levels of economic, civil, and political freedom will produce the best long-term investment growth. His firm, Life and Liberty Indexes, operationalizes this belief by using freedom scores as the primary factor for country allocation, explicitly excluding state-owned enterprises and low-scoring nations.
This approach reframes country risk from a purely economic variable to a broader socio-political one, betting that liberty is a leading indicator of sustainable economic success.
▶The Uninvestability of Autocratic RegimesApr 2026
Toll makes a strong case against investing in autocratic states, using China as his primary example. He cites the government's ability to suppress business leaders like Jack Ma, compel companies like Tencent to serve state interests, manipulate economic data, and maintain a 99% criminal conviction rate as evidence of an environment hostile to shareholder value.
Analysts should consider that in such regimes, traditional corporate governance metrics may be irrelevant, as state interest can override fiduciary duty at any moment.
▶Data Integrity and Source ReliabilityApr 2026
Toll emphasizes the importance of using unbiased, third-party data for his investment methodology. He highlights the World Bank scrapping its 'Doing Business' index due to Chinese coercion and notes that some autocratic countries have stopped publishing economic data, reinforcing his reliance on non-governmental sources like the Cato and Fraser Institutes.
This highlights a growing meta-risk in international investing: the reliability of the very data used to assess economic health and risk is becoming compromised by state actors.