Mighty rise of the small caps
Published in the Courier Mail, November 2010
By Karina Barrymore
Sharemarket investors are rapidly regaining confidence after the global meltdown as the speculators come back out to play.
Small-capitalised companies - traditionally considered to be the riskier end of the sharemarket - are back in favour and plenty of investors are paying to get a piece of the action.
The increased demand has pushed up the price of small-cap stocks by almost three times that of the big end of the market.
Stockbroker and Wise-owl analyst, Tim Morris, says the tide started turning in favour of riskier investments over the past couple of months.
"There has definitely been an increase in risk appetite among investors over the past two months and we have been recommending more small, speculative companies to our clients in order to capitalise on this," Mr Morris says.
The widening gap between the two main indices - the ASX200 and the All Ordinaries - is testament to the popularity of the small-cap companies.
"These two indices are usually priced very close together, after all they share a lot of the same stocks," says Australian Stock Report research head Geoff Saffer.
"When the All Ords rises above the ASX200, it indicates that small-caps are in demand and performing well, which is usually a sign of confidence."
However, it is not just about a resurgence in the price of small company shares but also a decline in the price of some of the big-ticket companies.
"With such poor performances from the largest of the large-cap stocks, the ASX200 has risen only about 7.5 per cent this financial year," Mr Saffer says. "In contrast, the Small Ordinaries Index has risen 20 per cent."
Fund manager Dale Gillham, from Wealth Within, also warns that some people may swing too far toward the risk side of the market.
"Essentially, we are seeing the groundswell and the start of a repeat of the tech boom, where investors with little or no knowledge are buying into small-cap shares hoping to make a killing," he says.
"This is greed or emotional investing at its worst and should be avoided."
