It looks like classic equities are at crossroads. September brought a distinct seesaw trading pattern, and investors are increasingly looking elsewhere comparing indices of various commodities with various EM benchmarks.

Speaking about the latter, small caps have benefited from various regional growth stories – most notably, India’s ones – and enthusiasm for investing in early stage growth companies in artificial intelligence and electric vehicles.

Small-cap stocks in emerging markets have rebounded relative to large-cap stocks since the end of the coronavirus recession, consistent with their history of outperforming large-cap stocks after recessions. A strong Southeast Asia economic recovery cycle drove the initial outperformance, which was further fueled by underperformance among large-cap stocks.

The MSCI Emerging Markets Small Cap Index, which includes 1,905 stocks with an average market capitalization of $583 million, has gained 14.2% year to date. By comparison, the average size of large-cap stocks was $7.9 billion, a gain of 1.8%.

Small stocks posted strong returns. Elsewhere, Taiwan's Wistron Corp. and Global Unichip Corp. saw growth of 244% and 125% YTD, respectively, driven by developments in artificial intelligence. Stocks like Jindal Stainless Steel Ltd and Railways Vikas Nigam Ltd are at least 100% higher and have contributed to India's economic growth, which is the fastest among major economies.

The transaction resulted in an additional gain of 12 percentage points. The company's relative returns have outperformed the MSCI Broad Market Index so far this year, putting it on track for its second-highest relative return in the past 14 years. One reason is that large-cap companies are more vulnerable to economic problems in China.