It's a difficult time for some households and businesses as economic conditions bite. However, that doesn't necessarily spell bad news for all ASX shares.
There have been some difficult updates from retailers like Baby Bunting Group Ltd (ASX: BBN), which suggest that there's pain out there.
Are there any positives?
The Australian Financial Review reported on commentary by UBS analyst Shaun Cousins that indicated that the investment bank's data showed consumers have really been lowering their spending following the large number of interest rate increases by the Reserve Bank of Australia (RBA).
The AFR quoted Cousins, who said:
We believe it's a combination of cost of living pressures that have existed for almost 12 months and now intensified.
While we've had a strong labour market the support of savings has moderated and we think all consumers will change the way they spend. We believe the very affluent are unlikely to change much at all, the less affluent will be under greater pressure as they've got less buffer to handle rising living costs.
While UBS is negative about some parts of the retail sector, there are a couple of names that the broker does like, including Treasury Wine Estates Ltd (ASX: TWE) shares and Wesfarmers Ltd (ASX: WES).
Treasury Wine Estates shares bull case
The analyst suggested that the wine company could benefit from wealthy discretionary spending with Penfolds (which makes over half of the earnings). Cousins points out that the ASX share sells to a "broad range of international consumers". He said:
They're expanding their distribution reach internationally and we think that works well.
They've reallocated product destined for China to other markets to take advantage of demand that was strong but unmet, and are growing incremental demand. With a focus on premium and luxury, we think some of their brands can actually do better.
UBS has a price target of $13.75 on Treasury Wine shares, according to reporting by the AFR. A price target is where the fund manager thinks the share price will be in 12 months. The current price target suggests a rise of around 30% in the next year.
Wesfarmers share price bull case
Another option is the business called Wesfarmers which operates Kmart, as well as other retailers like Bunnings and Officeworks.
Cousins said:
We see the consumer avoiding big-ticket items and trading down to lower priced items, so Kmart is a trade-down winner across a variety of apparel and general merchandise categories that it sells.
The opportunity in the longer term for Kmart is to get the consumer to shop more frequently and a broader range of categories.
