Australian small-cap stocks rise amid Westpac-led banking sell-off

A sell-off in Australian bank stocks, triggered by Westpac’s earnings report, has shifted investor interest toward small-cap companies. Westpac reported a decline in mortgage applications following government tax reforms, contributing to a 62-point drop in the S&P/ASX 200 Index.

In contrast, the S&P/ASX Small Ordinaries Index has seen growth, gaining 0.6 per cent on both Monday and Tuesday. This resurgence follows the Reserve Bank of Australia’s decision to maintain the cash rate at 4.35 per cent and easing inflation concerns.

Market analysts note a growing valuation gap between large-cap blue-chip stocks and smaller companies. Some investment firms are actively betting against major lenders like Commonwealth Bank while taking long positions in small caps. Additionally, growth in the small-cap sector is being supported by infrastructure spending related to artificial intelligence.