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Global Small-Cap Companies: Asia

- By Holly LaFon

Small-cap companies are companies with small market capitalizations. Returns for small caps can be large, but volatile. In 2016, the Russell 2000 Value ETF, which tracks small cap stocks, returned 19.48%, beating the 11.96% return in the S&P 500. One year before, however, it declined 5.71%, lagging the 1.38% return in the S&P 500.

Over 10 years, the two classes have come out about even: The Russell 2000 returned 7.12%, and the S&P 500 Index returned 7.51%.


In Asia, small-cap stocks have underperformed in the last 10 years but have shown indications of rebounding. The MSCI AC Asia ex Japan Small Cap index produced a 10-year annualized return of 4.39% and a first-quarter return of 12.8% this year.

The Royce Funds, which specializes in small-caps, said it expects further growth for the category.

"We've seen 12 declines of 15% or more for the Russell 2000 since its inception in 1979," Chairman Churck Royce said in a January Q&A, 2016: A Terrific Year for Small Caps. "The median return for the subsequent recovery period was 98.8%. So we definitely see more running room for small-cap, even after such a strong and rewarding 2016."

Five Asian small-cap stocks investors tracked by GuruFocus purchased in the fourth quarter were: MakeMyTrip Ltd. (MMYT), Jumei International (JMEI), China Distance Educational Holdings (DL), Changeyou.com (CYOU) and Seaspan Corp. (SSW).

MakeMyTrip is an online travel company founded in India in 2000 that links travelers to flights and hotels. It has a $3.17 billion market cap, and its shares rose 55.4% year to date to close at $34.50 Thursday.

For its fiscal third quarter 2017, MakeMyTrip reported a 38.7% year-over-year increase in revenue to $123.25 million and EPS of 31 cents, compared to a loss per share of 47 cents one year previously.

Frank Sands (Trades, Portfolio), Manning & Napier Advisors, Jim Simons (Trades, Portfolio) and George Soros (Trades, Portfolio) bought MakeMyTrip in the fourth quarter.

Jumei International is China's largest online retailer of beauty products and started its website, Jumei.com, in 2010. The stock fell 30% year to date to $3.50 per share Thursday, and the company has a $497.45 million market cap.

In the first half of 2016, Jumei recorded a revenue increase of 1.7% year over year to $523.8 million and net income of $21.3 million compared to $29.2 million one year previously.

Chase Coleman (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Chris Davis (Trades, Portfolio) bought the stock in the fourth quarter.

China Distance Education Holdings provides continuing education online in China. It has a $332.96 million market cap and its price dropped 9% year to date to $10.16.

For the first quarter, China Distance Education Holdings reported a 31.2% year-over-year revenue increase to $32 million and diluted earnings per ADS of 25.9 cents, compared to 11.6 cents one year previously.

Jim Simons (Trades, Portfolio) bought the stock in the fourth quarter.

Changyou.com is a developer of online games for PC and mobile devices based in China. It has a $1.35 billion market cap and saw its price fall 25% year to date to $26.57.

For its fourth quarter, Changyou reported a 19% decrease in revenue to $131 million and 77 cents per fully diluted ADS, compared to 73 cents per fully diluted ADS one year previously.

Jeremy Grantham (Trades, Portfolio) and Jim Simons (Trades, Portfolio) bought the stock in the fourth quarter.

Seaspan Corp. operates a fleet of countainerships based in Hong Kong. The company has a $700.7 million market cap and its price declined 27% year to date to $6.65.

The company reported a 2.4% decrease in revenue year over year to $213.2 million and a diluted loss per share of 14 cents compared to earnings per share of 63 cents.

See more Asian small-cap stocks investors are buying here.
This article first appeared on GuruFocus.