The S&P/ASX 200 Index (ASX: XJO) went on a bit of a rollercoaster ride in 2022. I think 2023 could be another eventful year.
But then again, almost every year is eventful in some way. Elections, geopolitical uncertainties, interest rate changes, a boom or bust in a particular commodity or asset class – there's nearly always something going on somewhere.
I think it's important to remember that even though 'macro' events are always making headlines, the share market keeps going, and some investors are making smart moves to set up long-term returns.
I'm always investing for the long term, so what happens in 2023 isn't going to change my generally positive outlook about the coming decades.
In my opinion, we shouldn't base investment decisions on what might happen in the next 12 (or fewer) months. However, we can identify opportunities during volatile times. So, for a bit of fun, these are my thoughts on what could happen this year:
ASX 200 to finish higher
The ASX 200 fell by 5.5% between the close of trade on 31 December 2021 and 31 December 2022. It's not often that the share market goes backward by that much over a 12-month period.
Typically, the share market has climbed by an average of around 10% per year over the decades, so it wouldn't surprise me to see the share market finish higher in 2023. But, it will need to have a solid year to get back to December 2021 levels.
I think the reopening of the Chinese economy after COVID restrictions could be a good boost for commodity prices, which may be supportive for the share prices of ASX mining shares such as BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).
Higher interest rates may also boost the lending margins of ASX bank shares like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ).
I think that higher profits and dividends could push the bank share prices higher, though the medium-term is uncertain, with potentially higher arrears from some heavily-indebted households.
These two sectors, ASX bank shares and ASX mining shares, play important parts in the return of the ASX share market, so they could decide whether 2023 is a good year or not for the ASX 200.
Some top performers to be ASX 200 tech shares?
After such a heavy fall in 2022, the ASX tech share sector is ripe for a recovery in 2023, in my opinion.
Yes, higher interest rates do justify a lower share price for ASX growth shares that are expected to grow over the long term. But, with a number of stocks down between 25% to 50%, I think some of them can deliver outperformance this year.
Keep in mind that if a company drops by 50% from $100 to $50, a climb to $75 will count as a 50% rise.
I think that ASX 200 tech shares that can achieve longer-term profit growth may be able to rebound this year (or in 2024) and regain some of the lost ground.
If I had to pick three, I would choose Xero Limited (ASX: XRO), REA Group Limited (ASX: REA) and Altium Limited (ASX: ALU).
ASX 200 shares to continue paying strong dividends
I think that the ASX 200, as a whole, can continue to pay good dividends. Commodity prices are currently solid, which implies that dividends from BHP, Fortescue and so on can pay solid yields, in my opinion.
ASX bank shares can pay higher dividends if their profits go up, amid higher lending profits thanks to higher central bank interest rates.
Other ASX 200 shares that I think could pay strong dividends include Woodside Energy Group Ltd (ASX: WDS), Wesfarmers Ltd (ASX: WES), Telstra Group Ltd (ASX: TLS), Transurban Group (ASX: TCL) and Coles Group Ltd (ASX: COL).
