The ASX share market includes businesses from a wide array of different sectors, which have differing levels of exposure to weakness in the economy.
The rapid increase of interest rates and the high rate of inflation has led to increasing uncertainty, and a higher risk to the economy.
While a downturn wouldn't be the end of the world, it could cause profit pain to some businesses.
It's impossible to know which ASX shares would suffer the most, but some ASX shares may be able to provide stability if there is a recession.
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Woolworths Group Ltd (ASX: WOW)
We all need to eat food, so a supermarket business could be an effective investment to protect against the risk of a downturn.
The ASX share has also just announced it's buying the majority of the parent business of PETstock, which could provide defensive earnings as well – pets are usually an important part of the family that need food and other items. Management believes this business can deliver attractive growth in the coming years.
Woolworths is slowly adding to its network of stores in Australia, increasing its ability to generate earnings and achieve organic growth.
The Woolworths share price has dropped 13% since mid-August, so it looks better value.
Bapcor Ltd (ASX: BAP)
Bapcor is one of the leading auto part businesses in the Asia Pacific region. It owns a number of brands including Burson, Autobarn, Autopro, Midas, ABS and a number of speciality wholesalers focused on different parts of the market including large trucks, small trucks, electrical parts and so on.
In a recession, I think it's logical to expect that new car sales would reduce. Instead, I think that people would try to make their current car last longer – if a car part breaks, it would make financial sense just to replace the part. A recession could lead to more demand for some areas of Bapcor's business.
I think the Asian expansion of the business is promising. It is slowly building a Burson network in Thailand, which has a large population for Bapcor to tap into.
It wasn't long ago that Bapcor acquired 25% of Tye Soon, an Asian-listed auto parts business that has a presence in a number of south-east Asian businesses. This provides extra Asian diversification for the ASX share.
As a bonus, Bapcor has grown its dividend every year since it first started paying one several years ago.
Centuria Industrial REIT (ASX: CIP)
Higher interest rates have had an impact on some asset prices, but demand for quality industrial buildings remains strong. Once the rental contract is signed, the tenant has to keep paying, even if there is a downturn.
This real estate investment trust (REIT) is the largest ASX-listed, Australian-based pure play on industrial property. It recently announced that the rental growth is substantially offsetting the impact of higher interest rates.
It also announced the sale of stakes in some of its properties, which is being used to reduce its level of gearing (debt). As a bonus, the ASX share is expecting to pay a distribution of 16 cents per unit in FY23, which translates into a forward distribution yield of around 5%.
