Small-cap stocks have had a bruising year on the ASX as the Iran war sent oil prices surging above $US100 a barrel and the Reserve Bank of Australia embarked on an aggressive interest rate cycle to stave off inflation.
The Small Ordinaries Index has dropped 13 per cent so far this year, whereas the S&P/ASX 100 Index, which includes the bourse’s biggest companies, has climbed nearly 5 per cent.
But a softer inflation print this week, which suggested the economy was cooling at a faster clip than the RBA expected, has upended expectations for another rate rise this year, that has small-cap fund managers excited.
That is because while rate rises typically have an outsized impact on smaller companies, given they tend to carry more debt and are more exposed to consumer downturns, they also tend to rip when markets expect the rate cycle has peaked.
“Australian small caps have been crushed this year,” VanEck senior portfolio manager Cameron McCormack said.
Source: https://www.afr.com/markets/equity-markets/investors-tip-asx-s-battered-small-caps-are-about-to-go-on-a-tear-20260728-p60j59