It isn't easy to decide which horse to back during these volatile times, but top broker UBS has just added two ASX 200 shares to its 'best ideas' list.
The list reflects its most preferred and least preferred ASX shares for the next 12 months. The names on the list take into account UBS analysts' views of individual shares and a macro view of the sectors.
Geopolitical conflict, runaway inflation, supply chain chokes, and rising interest rates are some of the many factors hanging over equities today.
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Stagflation risk casts a long shadow
The bad news is that UBS believes the risk of stagflation is increasing. This is when inflation is high but economic growth is low to non-existent.
Such an outcome would be terrible news for ASX 200 shares. But there are some that are well placed to outperform.
In fact, UBS reckons a handful of ASX companies can even deliver solid earnings growth in such an environment.
Why some ASX 200 shares can thrive in the volatility
There are four themes that the broker is expecting. The first is a persistently tight global commodities market. Prices of metals to food have been surging higher and there is no relief in sight in the short to medium term.
The reopening of our domestic economy will also throw up some winners on the ASX 200. This is despite the threat of a global economic slowdown.
Our record low unemployment rate is another tailwind that is hard to ignore. Combined with the high levels of savings that households and businesses have hoarded, you can see why Australian consumers are sitting in a pretty good spot.
The ASX 200 shares to buy in 2022
Based on these factors, UBS has added Wesfarmers Ltd (ASX: WES) to its best ideas list. The broker did this not so much for the conglomerate's retail operations, but more for its commodities businesses.
Wesfarmers operates chemical, energy, and fertiliser businesses that service a range of sectors in both domestic and international markets. It also owns lithium assets, such as the Mt Holland mine, and is looking to build a lithium refinery in Western Australia.
The second ASX 200 share to make it onto the list is Qantas Airways Limited (ASX: QAN).
The broker explained:
"Qantas is also added to our most preferred as a means to fully capture the domestic economy's reopening momentum, and the strength in Airlines globally."
Least preferred ASX 200 shares
On the flipside, the two least preferred ASX 200 shares for the next 12 months are Adbri Ltd (ASX: ABC) and Inghams Group Ltd (ASX: ING).
This is largely because of the broker's expectation that they will be most impacted by rising input prices.
