Brazil’s Overlooked Small Caps Are Starting to Appear Cheap

A flood of foreign money into Brazil’s biggest companies in the first quarter has left small caps trading at their cheapest versus larger peers in over six years, with some investors saying the shift has gone too far.

Small caps, which typically trade at a premium on forecasts of faster profit growth than larger companies, are now valued at around 9.31 times forward earnings, compared with roughly 9.41 for the Ibovespa index, according to data compiled by Bloomberg. It is first time in over six years that small caps have not commanded a clear premium against their larger peers.