It feels like 2022 is definitely different to what ASX investors have experienced the previous few years.
High inflation is sticking around and interest rates will no longer remain at an almost-zero level. The hot property market is already cooling down.
So what does this mean for our portfolio of ASX shares?
Saxo Australian market strategist Jessica Amir has some ideas.
Image source: Saxo Markets
Get out of these ASX sectors. Now
In her latest quarterly update, Amir urged investors to consider selling out of real estate investment trusts (REITs) and consumer discretionary stocks.
Why? Because inflation is affecting building materials as much as groceries and petrol.
"It's not just the cost of chicken, beef, oil and bread that are rising – so too is lumber," said Amir.
"It's flowing to builders, squeezing their profits, while higher house and construction prices are being passed to consumers. This has started to cause cracks in the property market."
The scary thing is that this is happening even before Australian interest rates have risen.
"This has big knock-on effects," said Amir.
"In Q1, ASX-listed property stocks have collectively fallen 8% and ASX consumer discretionary spending stocks are down 12%."
She warned that more losses are expected in these categories in the current quarter and third quarter.
"Why? Australia's debt-to-income ratio climbed to 185%," said Amir.
"After an expected rate rise in May, mortgage repayments will rise and cost of living will go up, resulting in decreased consumption and a slowdown in property demand."
Overseas money to flow into ASX
Despite the drag from two sectors, Amir is bullish on the local market.
She reckons foreign investors will be increasingly attracted to the ASX this year, because of Australia's dominant resources sector and buoyant economy.
"Australia boasts one of the highest trade surpluses in the G20 countries – meaning it earns more money [than it spends]," Amir said.
"It's also likely to have one of the strongest economic growth rates in the G20 (4.3% GDP) and one of the best employment rates – just 4% unemployment this year and 3.9% next year."
Major contributors to Australia's exports are mineral and agricultural products. Commodity prices are surging, and inflation may push up even further.
"The iron ore price is up 28% so far this year, oil is also up 36% and wheat is up 41%, as at March 29. Australia's exports surged to $49.3 billion in January, so you can bet that Australian exports will climb further in March," said Amir.
"On top of this, prices are poised to rise over the longer term, amid anaemic supply and roaring demand, further benefiting Australia. This will attract more foreign money."
