Global equity markets are shifting into a more regionally balanced era, challenging the long-held dominance of U.S. equities. Over the past decade, U.S. markets have been buoyed by the soaring performance of the “MAG 7” tech giants, a resilient domestic economy, and a strong dollar. However, stretched valuations, faltering growth, and a weakening dollar are driving investors to reconsider their geographic allocations, a recent insight by HSBC Asset Management states, with European and emerging markets emerging as compelling alternatives.
Across Europe and emerging markets, the traditional large-cap advantage has flipped. Small caps have delivered superior annualised returns, with European small-cap earnings growth notably robust. “This outperformance is largely attributable to the recovery of small cap profitability from a low base following the global financial crisis,” explains Pascal Pierre, Head of European Equity, HSBC Asset Management.
In Emerging markets the picture is similar. Large caps have posted hardly any earnings growth over the past 15 years, while small caps have managed a modest compound annual growth rate of around 1%. Markets such as India and Korea have seen multi-year rallies in the small- and mid-cap segments, supported by improving fundamentals and robust domestic demand.
Read the full insight here.
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