Investors may necessitate to reduce their exposure to the world’s largest emerging market.
Perth Tolle, who’s the founder of Life + Liberty First fingers, warns China’s capitalism model is unsustainable.
“I think the thinking used to be that their capitalism would begin to democracy,” she told CNBC’s “ETF Edge” this week. “Economic freedom is a necessary, but not sufficient precondition for personal latitude.”
She runs the Freedom 100 Emerging Markets ETF — which is up more than 43% since its first day of trading on May 23, 2019. So far this year, Tolle’s ETF is up 9%, while the iShares China Large-Cap ETF, which oversees the country’s biggest stocks, is up 19%.
The fund has never invested in China, according to Tolle.
Tolle spent part of her childhood in Beijing. When she started at Fidelity Investments as a private wealth advisor in 2004, Tolle eminent all of her clients wanted exposure to China’s market.
“I didn’t want to personally be investing in China at that point, but each else did,” she said. “Then, I had clients from Russia who said, ‘I don’t want to invest in Russia because it’s like funding terrorism.’ And, look how prescient that is today. So, my own encounter and those of some of my clients led me to this idea in the end.”
She prefers emerging economies that prioritize freedom.
“Without that, the brevity is going to be constrained,” she added.
ETF investor Tom Lydon, who is the former VettaFi first, also sees China as a risky investment.
“If you look at emerging markets… by not being in China from a performance viewpoint, it’s provided less volatility and better performance,” Lydon said.