HSBC Asset Management has identified Asia's small-cap stocks as a standout performer over the past five years, noting that these stocks have outperformed their large-cap counterparts in the region by nearly 3% annualized at the index level. This outperformance has been achieved with lower volatility and more balanced sector diversification compared to large caps, according to HSBC's report [1].
A key driver of this trend is the rapid returns that smaller firms can deliver, particularly as they transition into the MSCI Asia ex-Japan large-cap index. HSBC highlights that, among 150 stocks promoted from the small-cap to the large-cap index in the early 2020s, the average gain in the year before promotion was an impressive 245%. However, this momentum slowed, with average gains dropping to 18% in their first year as large caps [1].
The report also points out that the global technology rally has resulted in Taiwan and South Korea having significant weightings in both the Asia small-cap and large-cap indices. India is noted as another country with a heavy weighting in the small-cap index, offering under-researched opportunities and potential for profit growth [1].
HSBC concludes that the combination of robust performance and broad sector exposure makes a compelling case for increased attention to Asia's small-cap segment [1].
CONCLUSION
HSBC Asset Management's analysis underscores the strong performance and diversification benefits of Asia's small-cap stocks, which have outpaced large caps with lower volatility. The report suggests that investors should consider the potential of this segment, particularly given the opportunities in markets like India.