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Business confidence down, ASX shares up?

Business confidence is plumbing new depths but the share market is officially in bull market territory. The S&P/ASX 200 Index (ASX: XJO) is now over 20% above its 23 March low, with gains over the past three weeks. 

Business confidence smashed 

But the Australian Financial Review reports that NAB’s chief economist was worried the business outlook was the weakest in the NAB business survey’s 30-year history. Business confidence is lower than even during the global financial crisis. 

There is no doubt conditions for business have toughened over the past month or so. Cafes, restaurants, and retailers have closed or limited operations. The downturn is impacting cash flows as revenue is cut off while costs mount. Retailers Premier Investments Limited (ASX: PMV), Adairs Ltd (ASX: ADH)Accent Group Ltd (ASX: AX1) and many other ASX retail shares have all shuttered shops. 

Some businesses benefitting 

But not all businesses have experienced the same conditions. Some have seen increased demand with supermarkets, protective equipment makers, and technology providers experiencing a surge. Coles Group Ltd (ASX: COL) shares have risen 15% from March lows while shares in Metcash Limited (ASX: MTS) are up 24%. 

Protective equipment maker Ansell Limited (ASX: ANN) shares are up 38% from March lows. Shares in ventilator makers ResMed Inc (ASX: RMD) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) are up 25% and 11% respectively. 

ASX technology shares have also seen a resurgence with Afterpay Ltd (ASX: APT) up an amazing 200% from March lows, although it is still 30% below its February highs. Xero Limited (ASX: XRO) has come back 35% while Altium Limited (ASX: ALU) shares are up 27%. 

Cashflow concerns 

But the pain is real elsewhere, with slowing sales and forced shutdowns evident in cashflow. Whilst a rebound is anticipated once the crisis passes and social distancing is relaxed, the immediate problem for businesses is rapidly declining revenues and mounting liabilities. 

Cashflow support will be key to ensuring some businesses’ survival, and the federal and state governments have been stepping in in this respect. Initiatives including the JobKeeper payment, loan repayment deferrals, and rental relief for tenants are all aiming to provide relief. 

Recession anticipated 

Despite these measures, a recession is anticipated with the employment rate tipped to top 10%. Governments and the Reserve Bank have thrown billions at softening the economic shock of coronavirus. Nonetheless, analysts are tipping it won’t be enough to innoculate the economy against some unpleasant consequences completely. 

Yet the share market is in positive territory as the initial shock of the pandemic wears off and more nuanced assessments of the situation are made. While business confidence may be down in the near term, share markets seem cautiously optimistic in the longer term. 

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Motley Fool contributor Kate O'Brien owns shares of Altium. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Xero. The Motley Fool Australia has recommended Accent Group, Ansell Ltd., and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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