ASX small-cap shares are underperforming on Thursday with the S&P/ASX Small Ordinaries Index (ASX: XSO) down 1% while the S&P/ASX All Ords Index (ASX: XAO) is just 0.15% lower.
At the start of 2026, fundies had high hopes for global small-caps given many Western nations, including the US, appeared poised to cut interest rates.
The war in Iran has changed that outlook.
A two-week ceasefire is now in place, however, the shock to energy supplies will take months to filter throughout Western economies.
Given oil’s flow-through effect to so many parts of the economy, including grocery prices, the impact may be enough to push up inflation.
Central banks are likely to respond by either hiking rates, or delaying previously anticipated rate cuts.
In Australia, inflation was resurgent even before the war began.
We’ve had two rate hikes already this year, and the market is pricing in a 60% chance of another one next month.
Higher interest rates are typically a headwind for small-caps, which are typically young companies using debt to fund their growth.
Here are 3 ASX small-cap shares that fund manager, Blackwattle, is backing for solid growth.
Blackwattle holds all three of these ASX shares in its Small Cap Quality Fund.
Lindian Resources Ltd (ASX: LIN)
The Lindian Resources share price is 88 cents, up 1.4% today.
This ASX rare earths mining share rose 26% over the past month, and is 782% higher over the past year.
Portfolio managers Robert Hawkesford and Daniel Broeren said:
Lindian Resources (+24.7%) is a rare earths miner in the final stages of bringing online its lead project, Kangankunde.
This is a unique asset given its low mining cost and extremely low capex requirements versus other rare earth projects globally.
For these reasons the company should be able to transition to production quickly, with first ore due later this year.
In March, Lindian announced a JV with a rare earths processor, which will allow it to produce a higher-grade concentrate.
This has materially increased the value of the company as it captures more of the value chain and taps into Western markets looking to pivot away from China supply.
Ridley Corporation Ltd (ASX: RIC)
The Ridley Corporation share price is steady at $2.74 on Thursday.
This small-cap ASX agribusiness share rose 2% over the past month, and is 14% higher over 12 months.
Blackwattle also holds this ASX share in its Small Cap Quality Fund.
Hawkesford and Broeren comment:
While the business may appear on the boring side, the excitement for us comes from the operational improvements executed by the management team under the current CEO, Quinton Hildebrand.
Hildebrand has guided the share price from 75c in 2020 to $2.90 by taking a strict focus on ROIC discipline.
Looking forward we are particularly excited about what can be delivered from the newly acquired fertiliser business, Incitec Pivot.
Superloop Ltd (ASX: SLC)
Superloop shares are $3.23, up 0.8% today.
This small-cap ASX telecommunications share rose 13% over the past month, and is 60% higher over 12 months.
Hawkesford and Broeren said:
Shares rose strongly in February following a well-received 1H26 result that demonstrated clear operating leverage and broad-based growth across all key metrics and segments.
Superloop continues to take market share from incumbent telecommunications providers, supported by its competitively priced high-speed broadband offerings and vertically integrated network.
Management commentary also reinforced confidence in the company’s growth trajectory, with continued subscriber additions and
improving scale across the platform expected to drive meaningful earnings expansion over the coming years.
The post 3 ASX small-cap shares this fund manager expects to outperform appeared first on The Motley Fool Australia.
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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.