Small-caps trail regional peers

Hong Kong's small-cap stocks are expected to lag behind other Asian markets because the local companies are mainly involved in manufacturing and have been weighed down by high raw material costs, according to UBS Securities.

This year, the small-cap index in South Korea has soared more than 60 per cent, while in the Philippines and Singapore the indices have risen 15.9 per cent and 6 per cent respectively, UBS said in its latest research on the sector.

In the same period, Hong Kong's small-cap index has seen only a 1 per cent advance.

David Lepper, the head of regional small-cap research at UBS, picked Singapore, Thailand and the Philippines as the best potential markets on forecasts that Asian small-caps are getting closer to a trough in valuations. Hong Kong is not among the top picks.

'Hong Kong small-caps are generally weighed down by the manufacturing sector, which has encountered problems including high raw material prices, a difficult pricing environment and fluctuations in United States consumer confidence,' Mr Lepper said.

However, he stressed that Hong Kong small-caps were not overpriced and were still attractive due to good corporate governance and earnings growth in the region.