Interest rates rose again this week for the second consecutive month.
Believe it or not, the Reserve Bank of Australia is deliberately trying to slow the economy down.
It wants Australians to spend less, thus reducing demand for goods and services.
That's obviously not the best environment for any business, not just ASX-listed companies.
When central banks do this, it is playing with fire. It has to be careful not to slow down activity so much that the country falls into recession.
Wilsons head of investment strategy David Cassidy thinks authorities will be successful in avoiding a global recession, but it will still be a bumpy ride.
And in such nervous times, he would pick only very specific ASX shares to buy.
"With the return and volatility of quality defensives being historically superior to those of broader equities during choppy market conditions, investors may benefit from purchasing these stocks during turbulent times."
Cassidy names three such quality defensive ASX shares in a recent Wilsons memo:
Market dominance matters when people have less to spend
One important theme that Cassidy's team seeks in quality defensive shares is market dominance.
The idea is that if a company has a monopoly or a massively unassailable position, economic downturns don't matter as customers still have no choice but to buy its goods and services.
They could even raise prices in response to inflation, and would not lose business.
A great example of this is toll road operator Transurban Group (ASX: TCL).
"Toll roads are used every day to get from A to B and pre-COVID had steady, consistent earnings growth," he said.
"Transurban is our pick with its monopolistic power in NSW, VIC, and QLD. TCL should be able to pass inflation costs onto the consumer as prices rise."
The Transurban share price has risen more than 4% year-to-date during a period in which the rest of the non-mining market has struggled. The stock also pays out a 2.5% dividend yield.
Cassidy also identified telephony as an "essential" service for Australians.
And he, not surprisingly, likes the market leader.
"Providers like Telstra Corporation Ltd (ASX: TLS) operate within an oligopoly with solid pricing power," said Cassidy.
"Earnings are unlikely to be volatile now competition in the market has subsided."
Telstra shares have dipped around 8% since the start of this year, while giving out a 2.8% dividend yield.
The third ASX share Cassidy named is related to a very basic human need — hunger.
"Since people need to buy food and basic household items, stocks from these sectors can do well when volatility is high."
Australia has an effective duopoly in the supermarket sector, but Cassidy has a definite favourite out of Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW).
"The underperformance in Woolworths adds to the case for buying at current prices," he said.
"Woolworths' valuation premium to Coles has also been eroded slightly over the past few months."
Indeed the Woolworths share price has dropped more than 10% so far this year. The ASX share hands out a 2.7% dividend yield.
