• The S&P/ASX 200 reaches the finish line down 6.3% on the year.
  • Despite some sectors ballooning and others crashing, on aggregate, we’re back where we started at the beginning of the year.
  • While some sectors have thrived in 2022, others have fallen way behind. What might be in store for 2023?

Winners

The big resource companies have turned in very healthy profits. BHP Billiton’s ASX:BHP (BHP) trailing-twelve-month (TTM) free cash flow (FCF) of $26.3b is demonstrative of a thriving conglomerate.

The bumper 2021 seen in the iron ore markets couldn’t continue. With the price finding a footing in the 100 USD/MT mark, Fortescue Metals Group ASX:FMG (FMG) and BHP ratcheted up 10% and 7% respectively on the year.

Rio Tinto’s ASX:RIO (RIO) slightly higher portfolio weighting towards the energy revolution, specifically in motoring and storage, provided a small boost over BHP to close out the year 16% higher.

Peak coal

Whitehaven Coal ASX:WHC (WHC) and New Hope Corp ASX:NHC (NHC) benefitted enormously from rocketing demand under the switch from gas to coal in Europe. This helped propel coal to sky-high international prices. WHC and NHC closed out the year 261% and 185% higher respectively.

Stabilisation of international supply chains and more competitive natural gas for power generation will hinder further expansion in these stock prices. The sun-run may be over, but stock valuations and dividends may remain high for some time.

 

Top Australian Brokers

 

Rising rates

Higher prices have pressured consumers and lowered volumes for some high-throughput retail businesses. Coles Group ASX:COL (COL) is down 7% on the year as the outlook sours on stubborn inflation.

Banks have fared a little better, able to swiftly pass on the climb in benchmark rates to their customers and attract higher margins on their loans businesses. As a result, Westpac ASX:WBC (WBC) and Commonwealth Bank ASX:CBA (CBA) are up 9% and 2% respectively.

Shielded from losses in the credit books, due, in part, to extremely low unemployment, Australian banks continue to perform well.

Big losers

Debt markets and technology stocks have been the big losers of 2022. Weighed down by a continual shifting in the goalposts by central banks, their frequent offering of more competitive rates drags on their respective valuations and incentives.

There are a few reasons why technology stocks may suffer when interest rates rise. For one, rising interest rates can make it more expensive for companies to borrow money, which can impact their profitability and financial performance.

Another reason is that rising interest rates can lead to a stronger US dollar, which can make it more difficult for technology companies to sell their products and services – that are priced in US dollars – internationally.

Finally, rising interest rates can also lead to increased competition for investment dollars, as investors may be more attracted to investments that offer higher yields, such as bonds. This can lead to a decrease in demand for technology stocks, which may result in a decline in their price.

Xero ASX:XRO (XRO) has fallen by 50% this year as a result of the macroenvironment. Atlassian NASDAQ:TEAM (TEAM) is down over 65% on the year. Technology has suffered in this market, while more moderate rate hikes in 2023 might give these stocks some room to grow.

Outlook

A gentler rate hike environment and a weaker US dollar might give some room for technology stocks to flourish yet again. The very same macroenvironment may boost a basket of raw material producers, as a weaker US dollar will send commodities higher. BHP and FMG might welcome such a pattern just as much as XRO or TEAM.