After getting a 40 per cent return on a US$4,580 investment in steelmaker Pantech Group Holdings in the past year, Vincent Ng Sze Tat is looking for the next winner among the small-cap stocks in Malaysia. No matter that analysts say gains among some of Asia's riskier shares are overdone, while the heads of exchanges in Thailand and Malaysia are urging investors to exercise caution when trading in the smallest stocks. Ng is one of a growing number of retail investors pouring money into the region's riskiest shares, attracted by gains that have outstripped larger stocks this year. Small and medium-cap stocks in Malaysia, Thailand and the Philippines have gained an average 41 per cent this year, almost four times the rise in bigger companies. "Some stocks don't have fundamentals, but why not, when you can make some money from speculation," Ng said. He said investing in larger firms such as Genting, which owns leisure and gaming companies, had not been profitable. Trading by individuals in Malaysia comprised 31 per cent of total value in August, up from 14 per cent in March last year, as the small-cap index rose to its highest level in more than six years. In the Philippines, the small-cap gauge has added 24 per cent this year, while the measure in Thailand rose more than 90 per cent. Turnover on Thailand's MAI Index averaged 8.77 billion baht (HK$2.09 billion) a day last month, four times more than the average in the first eight months. Increased activity in small-caps was a signal that a correction was imminent, said James Lago, the head of research at Manila-based PCCI Securities Brokers. The Malaysian small-cap index has fallen 14 per cent from this year's high in August when its price-book ratio reached 1.2, the highest since January 2008. "It's very hard now to find hidden jewels among small-cap shares as their prices have gone up substantially," said Adithep Vanabriksha, at Aberdeen Asset Management. "Many have valuations that are beyond their fundamentals." Investors should take time to research small-caps, given the potential for "substantial" losses, said Prapan Charoenprawatt, the president of Thailand's Market for Alternative Investment. Individuals should "exercise caution" when investing in penny stocks, Malaysia's Bursa chief executive Tajuddin Atan said. Economic growth in the region will probably slow to 4.7 per cent this year, the weakest pace since 2009, from 5.2 per cent last year, according to the International Monetary Fund. The lure of faster profit growth will keep individuals investing in smaller companies, according to Alexander Chia at RHB Research Institute. Profits of small-cap firms in Malaysia would grow 37 per cent in the next year, data showed. "There is more upside, I don't think the party is over yet," Chia said. "Mid and small-caps generally as a group tend to offer better growth than big blue chips." For Ng, investing in small-caps remains his preferred way to bolster his wealth. "My money would not grow fast if I keep everything in the bank," he said.