Jardine Fleming has launched 13 stock indices dedicated to smaller Asian companies, including an umbrella index covering the region as a whole outside of Japan and 12 individual country indices. The new JF Asia Small-Cap Index reveals the region's small-capitalisation companies have outperformed Morgan Stanley's benchmark US dollar-denominated Asia-excluding-Japan Composite Index (MSCI) by 52 percentage points between 1988 and last year. In the nine years, the Small-Cap Index jumped 279 per cent when dividends were excluded, compared with the MSCI's 227 per cent. P.J. King, head of Jardine Fleming Asia Research's small-cap unit, said: 'The message is clear that small-cap companies in Asia can deliver the same superior returns that have come to be associated with small-cap companies in Europe and the United States.' Small companies in the territory have not performed nearly so well. Jardine Fleming's Hong Kong Small-Cap Index posted a return of 139 per cent from January 1989 to November last year, far behind the Hang Seng Index's 568 per cent rise. Last year was exceptional, however, with Hong Kong's smaller companies outperforming the blue-chip index by about eight percentage points. Mr King said he expected this to continue but warned that the territory's small caps were close to the top of the market. Several initial observations had emerged from the research that went into construction of the indices, Jardine Fleming said. First, dividends appeared more important to Asian companies than generally appreciated. Second, earnings growth did not drive stock indices as much as investment theory would suggest. Third, the best way to play Asian small caps seemed to be to trade on the sentiment cycle. The new indices define small-cap companies as those accounting for the liquid portion of the bottom 10 per cent of each market's capitalisation. This usually works out to about 80 per cent of the companies on each exchange, or about 2,500 companies in the region.