2021 was a good year for ASX shares.
The S&P/ASX 200 Index (ASX: XJO) finished the year up 13%. The All Ordinaries Index (ASX: XAO) closed even higher, gaining 13.6% year-on-year.
But that's all water under the bridge now.
Looking ahead to 2022, The Motley Fool asked Brendan Doggett, country manager at investing platform Sharesies AU, which sectors look strong for ASX shares and which ones may wobble.
Volatility and inflation
Doggett told The Motley Fool that he'd witnessed "a huge influx of new retail investors in the aftermath of the COVID-19 market crash of early 2020".
Since then, investors have enjoyed 2 years of outsized growth, with the ASX 200 now up 55% from its 20 March 2020 closing low.
However, Doggett cautions that 2022 could look quite different for ASX shares. "This growth isn't necessarily stable over the long-term. So, we can expect to see more market volatility heading in 2022. This is why the education piece is so important for us at Sharesies."
One of the tangential impacts of the pandemic has been the extraordinary measures that governments and central banks have taken to keep their economies humming along. From near zero interest rates to record levels of quantitative easing (QE), all the monetary and fiscal levers have been pulled hard.
This, Doggett told us "combined with global supply chain constraints, created a perfect storm for inflation. Too much money, chasing too few goods and services".
"Several asset classes are known to perform well in inflationary environments," he added. "Tangible assets, like real estate and commodities, have historically been seen as inflation hedges."
In line with ASX shares involved in the commodities space, Doggett said that with the worst of the pandemic hopefully behind us, the climate crisis is back on retail investors' agendas:
Investors on the Sharesies platform continue to back companies building a future that they believe in, in growing numbers. Renewable energy and electric vehicles have been the main beneficiaries of this investor interest in past years, a trend that we expect to continue into 2022.
While investors will struggle to find any ASX shares directly working on EVs, there are plenty of listed companies that provide the base materials to power the renewable energy shift.
Novonix Ltd (ASX: NVX), for example, is involved in graphite exploration and mining, battery technology, and battery materials to supply the booming lithium-ion battery industry. Novonix also happens to be the best performing of the ASX shares in 2021, gaining 660% last year.
Fortescue Metals Group Limited (ASX: FMG), as another example, isn't solely an iron ore miner. The company is also developing green hydrogen production through its subsidiary green energy company, Fortescue Future Industries (FFI).
ASX shares in the BNPL space to remain popular
The once soaring buy now, pay later (BNPL) sector came under serious pressure in 2021.
Shares in industry heavyweight, Afterpay Ltd (ASX: APT), dropped by 30% over the course of the year.
BNPL newcomer, Laybuy Holdings Ltd (ASX: LBY), fared even worse. With the share price losing 82% last year, Laybuy Holdings was the worst performing of the ASX shares listed on the All Ords.
Despite those struggles, Doggett said BNPL stocks look to remain popular with retail investors in 2022.
"After falling in and out of the top 10 most bought stocks at the close of 2021, we see this up and down ride continuing into 2022," he told us.
Doggett added:
Whether you see these [BNPL] companies as overvalued and due for a correction or as growth machines with more to give, we expect these companies to remain a popular buy for investors in the year ahead as the companies continue to expand and secure partnerships in Australia and abroad with established players in the financial and retail sectors.
What about the great reopening?
As for ASX shares involved in the travel industry, like Flight Centre Travel Group Ltd (ASX: FLT) and Qantas Airways Limited (ASX: QAN), Doggett has a more pessimistic outlook for the year ahead.
"Beaten-down travel stocks have been a retail favourite with many purchasing shares in their favourite companies with a 'pandemic discount'," he said.
However, according to Doggett:
Travel stocks have not been quick to recover to pre-pandemic stock prices as new variants and uncertain future lockdowns weigh down investor confidence. As we head into a third year of airlines and other travel companies facing significant disruptions and ongoing loss of revenue, this is one sector which may have passed its window for a quick and strong bounce back to financial health.
Taking the All Ords as our benchmark, ASX shares have gained a combined 7.5% since 21 February 2020, just before the pandemic selloff commenced.
By comparison, the Qantas share price remains down 23% over that same period while the Flight Centre share price is still down 50%.
