Key points
- The ASX 200 has had a tough start to the year
- But energy shares have exploded higher over Janaury thus far
- Is it all about commodity prices, or is inflation helping too?
As most investors would be aware of by now, 2022 has not turned out to be a great year for ASX shares thus far. Since the start of the year, the S&P/ASX 200 Index (ASX: XJO) has lost a nasty 8.15% or so of its value and even descended into 'correction' territory (down 10% or more from the most recent high) at one point.
As you might expect, this downturn has seen many ASX 200 shares lose a good chunk of their share prices. But one ASX sector has been comprehensively defying this broader market gloom. That is ASX energy shares.
Over 2022 so far, the S&P/ASX 200 Energy Index (ASX: XEJ) has risen a healthy 3.85%. That's an outperformance of almost 12% over the broader ASX 200.
Digging deeper, we see that energy shares have indeed been on a roll. Take Santos Ltd (ASX: STO). Its shares are up 13% year to date in 2022 so far. Or Woodside Petroleum Limited (ASX: WPL), up a very pleasing 14%. Beach Energy Ltd (ASX: BPT) has enjoyed a 17% gain. Even AGL Energy Limited (ASX: AGL) shares have smashed the market, rising by more than 15% since the start of the year.
Most of these shares were very poor performers over 2021. For example, Woodside lost 3.6% over the year that was, while Santos managed a very small gain of 0.64%. AGL took the cake with its 48.6% slide.
So how could the tables have turned so decisively?
Why are investors piling into ASX energy shares?
Well, this trend might have a few underlying catalysts.
The first is the most obvious: energy prices. 2022 has seen a sharp rise in many commodity prices, but it's oil and coal that have arguably turned the most heads. According to Bloomberg, the price of Brent crude oil has risen from just under US$78 a barrel to just over US$91 a barrel over the past month alone. That's roughly an 8-year high. We've seen similar jumps in coal pricing too.
So obviously higher energy prices are a boon to companies that extract and sell these commodities.
But there could also be some inflation hedging going on. Inflation has become a hot topic in 2022 as red hot inflation numbers come out of both the US and Australian economies. My Fool colleague Zach recently discussed the views of economists at Westpac Banking Corp (ASX: WBC), who are pencilling in five rate hikes by the RBA from 2022 through until 2024 due to "hot-running inflation".
Since commodities (particularly energy) are essential economic inputs, many investors believe that they are essentially 'inflation-proof'. Some investors extend this reputation to the companies that extract and sell them too.
So perhaps a desire amongst some investors to protect their share portfolios against inflation by buying energy shares is also helping this ASX sector to enjoy such healthy gains. Whatever the reason for ASX energy shares successes in 2022 so far, it's certainly a dramatic turnaround from the malaise investors endured last year. It will be interesting to watch this space over the rest of the year.
