Small cap EM companies show less volatility

Small cap emerging markets firms are demonstrating relatively low volatility compared with large and mid cap firms in those regions, whilst they are generating better returns, new data shows.

The risk involved in investing in small cap emerging markets stocks has been broadly in line with that shown by large and mid cap firms as far back as December 1995, data from S&P Indices reveals.

Large and mid cap private equity has performed in a more diverse manner since October 1995 than small cap PE, which has shown less volatility.

Comparative annual returns have meanwhile been higher for small cap emerging markets stocks than large and mid cap stocks over the past decade.

Small cap firms have been less susceptible to the shocks of the past decade than bigger ones, and consequently have outperformed them across sectors and regions.

Traditionally, small cap stocks do outperform larger ones, but are more susceptible to risk. The latest data suggests that level of risk is decreasing.

Alka Banerjee, vice president of global equities at S&P Indices, said she expected the outperformance of small cap emerging markets stocks to continue, in line with domestic growth within those economies.

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