The ASX 200 ended the day down 1.3% at 7,069.9, to hit its lowest level since July. All sectors finished in the red.
Pain in the local market followed US losses overnight when the Fed said it may not cut interest rates next year by as much as expected. This also led to a rise in Australian bond yields.
Energy was the worst of the lot, losing 1.88% as Woodside and Santos ended down 2.54% and 1.3% respectively, as the West Texas oil price fell below $US89 a barrel.
Healthcare was also out of favour, falling 1.53%, as were financials (-1.7%) with the big four banks all ending lower.
A small cap recovery?
Over the past 12 months, the ASX small cap index is down 1.62% - substantially underperforming the ASX 200 (+5.46%) and the broader All Ords that’s similarly up 5% in that time.
But according to Ausbil Global Small Caps Fund co-portfolio managers, Simon Wood and Tobias Buck, small caps might be about to turn a corner.
The pair provided the following commentary:
“While small caps tend to get hit harder when the economy is weakening and the market is selling off … history also shows that small caps tend to do better when there is a recovery phase – which we are in now.
“We’re in a strong recovery phase in the asset class and that’s provided some of the strong recent returns.
“Small caps are currently trading at multiples to earnings that are three points below their historic average and close to a one-point discount to large caps.
“Small caps are really cheap compared to large caps and if you look back in time, small caps can trade at discounts to large caps, but when they do start outperforming large caps they do go on a bit of a tear for a while.
“We see a lot of areas of demand for small caps. These include opportunities from the energy transition and from AI, particularly the semiconductor manufacturers that are needed for AI and data centres.
“In terms of geographies, the US is one of the main markets, followed by Europe (including the UK) and Asia.”
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