It's been a depressing ride for investors this month as the S&P/ASX 200 Index (ASX: XJO) has plunged more than 8%.
According to Tribeca Investment Partners portfolio manager David Aylward, ASX shares are facing far worse conditions now compared to previous periods in the COVID-19 pandemic.
"With previous COVID-19 variants… when lock-downs were lifted [consumers] later came out and spent money. And the government's fiscal stimulus programs ensured there was money to spend," he said.
"But it is different this time. With Omicron, people either don't want to go out, or they can't go out because they are isolating – and this time there is no government stimulus to support their spending in the economy."
As such, when the current slaughter of ASX shares ends, he sees one type of business that might do very well, plus which companies will struggle:
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Clean energy will lead market out of the doldrums
The current dip presents a nice opportunity for ASX shares that are involved in the shift to clean energy.
"The energy transition is going to be hugely inflationary. When you combine that with the likely stimulus program coming out of China over the next 6 months, we could be locking in a supercycle round two for commodities," said Aylward.
"This will have significant ramifications for markets. A lot of stocks in the mid-cap sector will be exposed to benefit from that. And it will be quite a positive for small caps as well."
These commodity-based ASX shares will do much of the "heavy-lifting" for the Australian market, as much of the rest will struggle in an inflationary environment.
"A rebound in services can contribute as we move past Omicron but non-earners and consumer finance type stocks will likely find inflation and higher interest rates tough going."
This reporting season will be one for the ages
The coming February reporting season will be enlightening for ASX share investors, according to Aylward.
And it's not all about just the financial figures.
"This Omicron impact will be an important narrative in the upcoming Australian reporting season," he said.
"It won't necessarily show up in the numbers as yet, but it will be interesting to hear company management remarks on how they have been trading recently, and how their supply chains have been impacted."
Redpoint Investment Management chief investment officer Max Cappetta expects a dividend windfall from certain sectors.
"The mining sector was responsible for carrying the ASX 200 to a record aggregate dividend payment year in 2021 and remains well placed to provide solid cash flows again in 2022 supported by more accommodative policy in China," he said.
"Those companies benefitting from a domestic consumer unable to travel and move more freely, such as JB Hi-Fi Limited (ASX: JBH), consumer group GUD Holdings Limited (ASX: GUD) and auto retailer Eagers Automotive Ltd (ASX: APE), are also likely to deliver strong dividend yields in February."
