S&P/ASX 200 Index (ASX: XJO) shares have just flipped the calendar on a year to forget.
Pressured by China's growth hampering COVID lockdowns and fast rising interest rates across the world to combat soaring inflation, ASX 200 shares fell 5.5% in 2022.
The smaller end of the market had an even tougher time, with the All Ordinaries Index (ASX: XAO) dropping 7.2% over the year.
This was a stark contrast to the strong run in 2021. That year saw ASX 200 shares charge 13% higher while the All Ords gained 13.6%.
Add in dividends, and total returns for All Ords shares (share price moves plus dividends) came in at 17.7% in 2021, according to data from the Commonwealth Bank of Australia (ASX: CBA).
In 2022, however, the All Ords total returns fell by 3%.
Though that's still a lot better than the hefty losses suffered in United States markets and across most European and Asian exchanges.
"There's no doubt that Aussie share market investors had a tough year in 2022. But the good news is that Australian share indexes held up better than in most other advanced markets due to an outperforming economy," CommSec chief equities economist Craig James said.
That's a look in the rearview.
So what can investors in ASX 200 shares expect for 2023?
Well, perhaps not the same bull run we enjoyed in 2021. But it should be a heck of a lot better than the year just passed.
Economists at CBA forecast that the ASX 200 will post full-year share price gains in the range of 4% to 7%.
ASX 200 shares to rise by up to 7% in 2023
CBA's economists note that their forecast remains dependent on inflation pressures, interest rate changes by major central banks and the ongoing economic recovery in China.
They expect one more 0.25% interest rate increase from the RBA in February, forecasting potential rate cuts later in the year. Australia's economic growth is forecast to slow to 1.1% in 2023, from 3.5% last year.
As for which ASX 200 shares may outperform, CBA reported that consumer discretionary, information technology, property and smaller companies "may be favoured" from the second half of 2023.
The bank foresees ongoing challenges for the energy and materials sectors, which strongly outperformed in 2022.
Risks and opportunities
Commenting on the risks and opportunities ahead for investors in ASX 200 shares in 2023, James said:
High levels of inflation, continued uncertainty about interest rates, tight labour markets, high energy prices, the war in Ukraine and the re-opening of the Chinese economy pose both risks and opportunities for investors.
While the coming year certainly won't be without its challenges, we are tipping a modest gain for the benchmark S&P/ASX 200 index in 2023 of 4-7 per cent to near 7,350-7,550 points.
Wishing you happy and prosperous investing in the New Year!
