HSBC Asset Management spotlights Asia’s small-cap stocks as a strong performer over the past five years, outperforming regional large caps with lower volatility and better sector diversification. The report notes rapid pre-promotion gains for firms moving into the MSCI Asia ex-Japan large-cap index and highlights India as a heavily weighted small-cap market with under-researched opportunities and potential profit growth.

Small caps deliver diversified Asia exposure

"An unsung story in global stocks over the past five years has been Asia’s small-cap stocks. Over that period, they have outperformed their large- cap peers in the region by nearly 3% annualised at the index level – and done so with lower volatility and more balanced sector diversification."

"Key to this is the rapid returns that smaller firms can deliver. Let’s look at the performance stats of 150 stocks promoted to the MSCI Asia ex-Japan large-cap index from the small-cap index in the early 2020s."

"The year before promotion, those stocks saw stunning average gains of 245%, but that fell to 18% in their first year as large caps."

"In terms of diversification, the global tech rally means that Taiwan and South Korea now have significant weightings in both the Asia small cap and large cap indices. Another country heavily weighted in the small-cap index is India, which some analysts highlight as a source of under-researched opportunities and potential profit growth."

"Overall, this blend of robust performance and broad sector exposure supports the case for thinking big on Asia."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)