The ASX share market is off and running for the new year. On Tuesday 3 January, the first day of trading in 2023, the S&P/ASX 200 Index (ASX: XJO) dropped 1.31%.
With the pain that investors saw last year, it might be tricky to know where to go hunting for opportunities. I don't know what the future is — my crystal ball isn't working. All we can do is invest in what we think looks like a good long-term investment.
Many share prices are now a lot lower than they were 12 months ago. For me, I think it's a good time to invest.
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My areas of focus on the ASX share market
While the biggest declines of 2022 won't necessarily see the strongest rebound in 2023, I think they could be some of the most fruitful places to look for ideas.
A number of ASX tech shares were heavily sold off in 2022. Names like Xero Limited (ASX: XRO), REA Group Limited (ASX: REA), SEEK Limited (ASX: SEK), and Nextdc Ltd (ASX: NXT) have all dropped heavily. Yet, some of the ASX tech shares are national or global leaders, so being able to buy them at a much better price seems like a good move. Currently, my biggest position in tech is Bailador Technology Investments Ltd (ASX: BTI).
Another sector that has been battered is ASX retail shares. While some retailers may have a very tough time, I think that some sunken share prices now look very good. These include Wesfarmers Ltd (ASX: WES), Universal Store Holdings Ltd (ASX: UNI), Adairs Ltd (ASX: ADH), and Temple & Webster Group Ltd (ASX: TPW).
With the ASX share market down as a whole, I'm looking at diversified investment options such as exchange-traded funds (ETFs) that are also down and listed investment companies (LICs) that are trading at a large discount to their net tangible assets (NTA). I like the idea of buying a $1 basket of shares for much less than $1.
Some ASX shares, not just LICs, also trade at much lower prices compared to their underlying NTA, such as Brickworks Limited (ASX: BKW).
Where I'm being careful
I think it's important to acknowledge that some sectors are cyclical. ASX energy shares have done well over the past 12 months. However, I'd guess it's unlikely energy prices are going to jump again from here, so I'm not looking to invest there for capital gains, even though dividend income could be strong in the short term.
Some ASX bank shares are benefiting from higher interest rates, but I'm being careful about the medium term. The lending margin may have improved, but I think we're getting closer to the time when we're likely to see rising arrears if some households can't absorb the higher interest rates.
Finally, there are some resource prices (like iron and copper) that have rebounded in recent weeks, leading to strong share price performance
Foolish takeaway
We could be at a new normal of valuations, where valuation multiples are going to stay lower. But I don't think this correction is likely to mean permanently lower share prices. However, businesses will need to generate growth to achieve a sustainable rise, rather than being driven by ultra-low interest rates.
