ASX shares are divided into 11 market sectors which are represented by their own ASX 200 indexes.
If we take a look at the year-to-date performance of these 11 sectors in 2023, there are three categories that stand out for share price growth.
Seems like everyone is buying ASX 200 property shares — otherwise known as real estate investment trusts (REITs). Next on the list are ASX 200 retail shares and ASX 200 technology shares.
To date in 2023, the S&P/ASX 200 A-REIT Index (ASX: XPJ) is up 14%. Coming in close behind is the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) which is up 12.9%.
The next sector in line is the S&P/ASX 200 Information Technology Index (ASX: XIJ) with a 10.9% gain.
Are you detecting a pattern here?
Why are these ASX 200 shares rocketing in 2023?
The answer is pretty simple. These three sectors were pummelled the most during the 2022 sell-off, so they're having the biggest bounceback today in a newly optimistic market.
These S&P/ASX 200 Index (ASX: XJO) shares suffered the most last year because rising inflation and interest rates are particularly impactful in these sectors.
That turned investors off, which meant buyer demand fell, and some even decided to sell.
The result? A substantial fall in the prices of ASX 200 shares in these three indexes.
The technology index fell 34% over the 12 months of 2022, the A-REIT index fell 24%, and the consumer discretionary index fell 23%.
Here's why these ASX 200 shares were hit hardest among the 11 market sectors.
Generally speaking, rising inflation is bad news for most companies. It means their input costs increase, and if they can't raise the prices for their products and services, this usually reduces their margins.
In terms of rising interest rates, they hurt the economy on many fronts. Every company and household with debt faces rising costs, and people cut back spending on discretionary items.
Rising rates are especially bad for Australian tech companies and REITs.
Many listed Australian tech companies fit into the growth shares category. That means they've typically got a fair bit of debt and are spending a lot to get established while not necessarily making a profit.
Meanwhile, rising rates also bring property prices down because demand goes out of the market. While REITs managing shops, offices, commercial, and residential property can raise the rent when leases turn over, most leases outside residential are multi-year agreements that can't be changed in the short term.
The ASX 200 appears to be turning
ASX 200 shares have lifted 8.8% already in January. That's a clear indication of new confidence.
The Reserve Bank told us this week that inflation has peaked in Australia, and recent US inflation news was positive.
If inflation is coming under control, that means interest rates won't have too much further to go.
That's got investors excited enough to get back into the market in 2023 and buy the dip while they can.
Which shares in these sectors should you buy?
A good starting point when researching a market sector is to first look at the top ASX 200 shares by market capitalisation to see how they're performing.
The biggest ASX property share by market cap is Goodman Group (ASX: GMG). It lost 35% in value in 2022. So far in 2023, Goodman Group shares are up by 21%.
The biggest ASX retail share is Wesfarmers Ltd (ASX: WES). Wesfarmers shares lost 23% in 2022. So far in 2023, the Wesfarmers share price is up by 12%.
The biggest ASX tech share is WiseTech Global Ltd (ASX: WTC). The Wisetech share price fell 13% in 2022. So far in 2023, the shares are up by 26%.
