Size isn’t everything, unless, of course, you are talking about returns.

European small-cap and mid-cap companies had a strong run in the first half, when returns reached 10.3 per cent, notes Credit Suisse. Since then, a weaker showing in June has created a buying opportunity, according to analysis from the bank.

It points out that “all but Norwegian small-caps were up during January to May” and that “all but Denmark and Ireland were down” during the June pullback. At the sector level, only insurance stocks rose last month, at a time when bond yields were climbing, which helps support insurers who are typically significant buyers of sovereign debt. The pattern leaves European small-caps looking ripe for a late-summer rebound.

That’s because “a range of macro indicators continue to strengthen and political risk appears to be rapidly falling”, says Eugène Klerk, analyst.

That combination creates a bullish outlook for earnings, even after a continent-wide 12 per cent rise in 12-month forward earnings per share, a widely-followed lead indicator, with the best showing in France and Italy.

The positive reasoning does, however, have a notable exception in the region.

“We remain negative on UK small-caps owing to the recent, sharp, weakening in macro conditions, growing political uncertainty and falling corporate spending intentions,” the analysis points out.

“UK small-caps are unlikely to do well in a toughening Brexit environment,” says the research.


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