One of the reasons I’m optimistic that global equity markets will rally from these levels is that if investors were really worried about the global economy heading into recession, we would probably have seen small-cap stocks decline more than large-cap stocks around the world over the past three weeks. That happened in the U.S.—probably because small caps, after a huge 2013, were a juicy target for profit taking. But it did not happen in Europe, Japan or the rest of the developed and emerging world. In all of those regions, broad-based small-cap indexes held up better than large-caps during the sell-off. That may be a signal that global reflation and recovery lie ahead—not deflation and recession.
The chart below shows that the WisdomTree Europe SmallCap Dividend Index actually posted positive gains through February 5, whereas both the S&P Europe 350 Index and the MSCI EMU Index (both predominately large cap) posted declines.
Read more on European Small Caps here.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Funds focusing their investments on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.
This article was written by WisdomTree Chief Investment Strategist Luciano Siracusano III