Some of the big names in emerging markets like Taiwan Semiconductor Manufacturing Company (2330:TPE) and Chinese internet giant Alibaba (BABA:NYSE) will be well known to investors but there is a whole gamut of listed companies running all the way up and down the market value spectrum in the developing world.

As the chart shows, the MSCI Emerging Markets Small Cap index has outperformed the broader MSCI Emerging Markets benchmark over recent times. According to MSCI, the annualised total return over the last five years from the former is 10.3% (as at 31 July 2024) compared with just 3.4% for the latter. The small-cap emerging markets index has also done better than the 8.5% five-year annualised total return from the global MSCI ACWI Small Cap index.

The average forecast price to earnings ratio for MSCI Emerging Markets Small Cap is higher than the broader index at 13.5 times versus 12 times although they trade on a lower price to book at 1.55 times versus 1.79. The dividend yield on offer from MSCI Emerging Markets is a smidge higher than its small-cap counterpart at 2.7% against 2.3%.

China has a significantly lower weighting in the small cap index, which is dominated by India, and there is a notably lower allocation towards the technology and financial sectors.

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit www.temit.co.uk

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