(Bloomberg) — With the final quarter of 2023 approaching, one winning strategy in emerging markets is becoming clearer: buying shares in smaller companies.
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The trade has produced an extra gain of 12 percentage points over the MSCI large-cap index so far this year, on course for the second-best relative returns in the past 14 years. Part of the reason is that large-cap companies are more likely to be exposed to China’s economic troubles.
Small-caps, on the other hand, are benefiting from local growth stories such as India’s as well as the craze for investing in young companies in artificial intelligence and electric vehicles.
“Small caps in EM have rallied relative to the large caps since the end of the Covid drawdown, in line with previous historical instances when small outperforms large coming out of recessions,” said Jitania Kandhari, deputy chief…
