The "20 under a billion stocks" were selected largely based on bottom-up screenings and each of the 20 companies possesses its own unique company-specific factors.
MIDF Research selected these small cap stocks because they exhibited markedly higher beta since mid-2013, and that investors can profit from the small cap swings.
The continuation of small cap swings may be dependent on liquidity dynamics. We reckon continued net purchases among local investors are necessary to support the small capitalisation swings, as without which the market momentum may eventually narrow down again towards higher capitalised stocks.
Hence for as long as the suitable liquidity dynamics remain present, we foresee recurring interest in the forerunners among the small capitalised stocks, as well as rotational plays that may lift some of the laggards.
On this score, we expect the liquidity dynamics to remain supportive of the small capitalised stocks at least up to after the initial or even a few US Federal Reserve rate hikes.
However, while the markedly higher beta among small capitalised stocks may result in massive outperformance during a cyclical market upturn, MIDF forewarned that the reverse is equally true in a market correction phase.
Sustainable gains may only be achieved via fruitful short-term trading or careful stock picking. With regard to the latter, it must be highlighted that small capitalised stocks generally trade at comparatively lower valuations vis-à-vis its bigger peers.
Hence, judicious stock selection may unearth compelling bargains which would be able to generate more genuine gains and that are less susceptible to the possible adverse shift in underlying liquidity dynamics. |
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