LIVE MARKETS-Small caps wake up – just not on Wall St yet

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SMALL CAPS WAKE UP – JUST NOT ON WALL ST YET

Small caps are showing signs of life in selected international markets, according to JPMorgan strategist Mislav Matejka, who sees better risk-reward outside the U.S.

After years of underperformance, small caps are outperforming in the euro zone and Japan, while continuing to lag on Wall Street and in the UK.

Matejka attributes the rebound to attractive valuations, "very low" investor positioning and macro tailwinds such as falling bond yields and a weaker dollar.

In the old continent, the euro zone is leading thanks to stronger PMI momentum and fiscal support, while UK small caps remain mixed.

"The hurdle rate is unassuming," Matejka says, pointing to how far the group has lagged.

While JPM remains cautious on U.S. small caps, it notes their recent attempts to break out, helped by potential Fed easing and tax bill provisions that could boost cash flow.

The strategist keeps his overweight on Germany's MDAX .MDAXI index and says international names will likely keep bottoming out after years of neglect.

(Danilo Masoni)

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EARLIER ON LIVE MARKETS:

STOXX DIPS, RENEWABLES RALLY ON US SUBSIDY CLARITY CLICK HERE

BEFORE THE BELL: EUROPEAN FUTURES STEADY, NOVO JUMPS CLICK HERE

GEOPOLITICS DOMINATES, BEFORE FED TAKES THE STAGE CLICK HERE