The S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) crashed deeper into the red after our central bank made an emergency rate cut and promised to pump $90 billion in extra liquidity through the banking system.
The top 200 benchmark lost 3.4% on Thursday as the market doesn't think the Reserve Bank of Australia's (RBA) unprecedented action will save us from a coronavirus recession.
The RBA cut the official cash rate to a record low of 0.25% and embarked on a quantitative easing program for the first time ever.
First recession in 30 years
If economists are right, the Australia will fall into its first recession since 1991 with the unemployment rate surging to around 7%-8%.
UBS is offering some advice and insights to investors on how to survive the pandemic-driven recession.
One of the big questions is whether most of the bad news is already price in since the ASX 200 has shed more than 30% of its value since its February record high.
How much bad news is priced into the market?
The broker believes that the drop is factoring in what it calls a "normal" recession where earnings per share falls by an average 32% from peak to trough.
In past recessions, resource stocks tend to bare the brunt of the earnings per share (EPS) cut with the group losing around 44%. Financials are not far behind with an earnings downgrade of 37%, while industrials suffer a 25% drop.
"But, if the recession sees unemployment rise by more than 3% (such as the 1975, 1982/83 & 1990/91 recessions) and is extended through 2020 (the pandemic scenario), then equities could continue to fall significantly ahead," warned UBS.
Best defensive growth stocks
It's anyone's guess at the moment on where the unemployment rate could end up but the best way to position your share portfolio in the current bear market is to go overweight on infrastructure stocks with defensive dividends, consumer staples and real estate investment trusts (REITs).
This is why the broker's top buys include gas pipeline owner APA Group (ASX: APA) and rail operator Aurizon Holdings Ltd (ASX: AZJ).
Other stocks to buy in this recession
Also in the list of UBS' top picks are banking giant Australia and New Zealand Banking Group (ASX: ANZ), blood treatment developer CSL Limited (ASX: CSL), medical equipment maker RESMED/IDR UNRESTR (ASX: RMD) and supermarket chain Woolworths Group Ltd (ASX: WOW).
"We like APA and AZJ as they are two income names with highly defensive dividends given their 'take-or-pay' structure," explained UBS.
"We like ANZ as an alternative source of yield given its cheap valuation.
"Given recent share price falls, we like the quality defensive growth names CSL and RMD. WOW is defensive and provides exposure to strong near-term sales."
