A widening valuation gap between Australia’s largest companies and the rest of the market is creating opportunities for active investors, with earnings growth disconnected from share prices, according to Auscap.
Co-founder and CIO, Tim Carleton, said the valuation dispersion between the ASX’s largest companies and the SMID-cap segments has reached levels not seen in the last 25 years, creating what Auscap believes is a growing pool of opportunities outside the market’s largest stocks.
“The dispersion in multiples between the larger part of the market and the smaller and mid-cap part of the market is wider now than it was in the depths of the global financial crisis,” Carleton said.
“Importantly, this dislocation hasn’t been driven by earnings. Earnings expectations for the mid-cap segment have actually improved through 2026, while there have been relatively few revisions to earnings expectations for the ASX 20.”
Carleton attributed the divergence to a combination of strong investor demand for large-cap stocks, the growth of passive investing and enthusiasm around major themes including artificial intelligence.
