ANALYSIS-Small industrial, luxury stocks gain from euro, BRICs

Small engineering and luxury products companies in Europe could outperform larger competitors in the current market squeeze as the falling euro accentuates the benefits of emerging market demand.

Small-cap stocks tend to underperform larger peers during downturns and outperform during economic recoveries and since the Greek sovereign debt crisis has hit markets, small companies in Europe have lost almost twice as much as their bigger rivals.

Since April 26, when the stock market began to decline, the MSCI European Union Small Cap Index has slid 14 percent, compared with the FTSEurofirst 300 which has lost about 7 percent.

But data from Thomson Reuters' StarMine suggests that some sectors in the European small-cap universe have fallen by less than their bigger counterparts, giving investors the chance of relative safety during market ructions.

"The sectors that have worked well are travel and leisure, industrials, and technology, the three sectors which are heavily weighted towards mid-caps and linked to consumption," said Florian Castel, mid-cap fund manager at Exane BNP Paribas.

He said that smaller companies were benefiting from this emerging markets consumption trend specifically because they make niche products.

"There is more discretionary consumption in small and mid caps," he said.

The euro hit a four-year low against the U.S. dollar this week, impacted by concerns over market regulation and sovereign debt.

Over the past few days, the euro has reached a 17-month low against the Russian ruble, a seven-and-a-half year low against the Chinese yuan, a two-and-a-half year low against the Indian rupee, and an eight-year low against the Brazilian Real.

Exane's Castel pointed out that since April 26, when the sell-off started, some companies have declined by much less than the general smallcap index.

Luxottica has fallen by around 6 percent, Swatch has fallen by about 7 percent and Burberry has fallen by about 4 percent.

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