S&P/ASX 200 Index (ASX: XJO) shares had a rocky time last year. Will the ASX share market deliver positive returns this year?
A number of factors ravaged the ASX share market in 2022, including inflation, interest rates, conflict between Russia and Ukraine, and uncertainty in China.
We can see how the volatility hit the ASX with the exchange-traded fund (ETF) iShares Core S&P/ASX 200 ETF (ASX: IOZ).
But after the market has been jostled around, what might be in store for the ASX 200 this year?
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Economic changes to start showing in results and trading updates
I think that a number of sectors are going to start showing changes in economic conditions.
For example, many bricks and mortar ASX retail shares may show strong year-over-year sales growth for the six months to 31 December 2022. That's because the six months to 31 December 2021 saw lockdowns in a number of cities, with many stores shut or trading with restrictions. But, the trading update for the start of 2023 could start showing the impacts of inflation and higher interest rates.
Another area of change could be for ASX 200 bank shares like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ).
With interest rates rising, the banks are passing on the hikes to borrowers more quickly than savers. I expect that banks are going to report higher lending margins and profits in 2023. This could be a boost for share prices. But, FY24 and even the second half of FY23 could show bank arrears starting to increase with how rapidly interest rates have risen.
Because the banking sector is significant within the ASX 200, it will have a key influence on whether the ASX 200 climbs or not.
Unpredictable resources sector
Another important factor for ASX 200 shares is the large resources industry.
Numerous companies on the ASX are digging stuff out of the ground, such as BHP Group Ltd (ASX: BHP), Forrtescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO), Mineral Resources Ltd (ASX: MIN) and so on.
If everyone knew what would happen next with resource prices, then it would be much easier to know what profits resource companies are going to report each year.
I think that Chinese demand for iron ore will grow in 2023 compared to the last few months as the Asian superpower exits COVID-19 restrictions. This could mean that the iron ore price could rise even further. But, with the commodity's price above US$110 per tonne, it's possible it has rallied ahead of itself. Time will tell.
One area that I am optimistic about is profit-producing miners that are exposed to electrification commodities such as copper, nickel and lithium. I think that the trend towards decarbonisation is going to continue regardless of a dip in the global economy.
My thoughts on ASX 200 share opportunities
Overall, I think the ASX 200 can produce a small capital gain by the end of the year, plus dividends. There will probably be more uncertainty, but I don't think things will always look this negative.
For me, I think ASX tech shares could be a good place to look for long-term opportunities, as they're now at much cheaper prices after the heavy declines in 2022.
