The Australian share market has staged a strong comeback from March's coronavirus downturn. The S&P/ASX 200 Index (ASX: XJO) is up 21% from the low of 4,403 points reached on 23 March. Government and RBA interventions have propped up the economy, averting the worst of the crisis.
Shape of recovery
Coronavirus infection rates are dropping and restrictions are being lifted, leading to hope that the economy can return to normal functioning.
Whilst a depression appears to have been averted, a recession seems almost certain. Hopes of a V-shaped recovery are looking less likely as it appears restrictions will be lifted in stages.
It is unclear how consumers, many of whom have lost jobs, will behave in these unprecedented circumstances. Many have deep concerns about the global economy which will be reflected in spending. Yet the risks of a prolonged and deep recession appear to have been discounted by investors who have poured into the market since its low last month.
Share prices and risk
There could still be a fair amount of risk which is not reflected in share prices. Westpac Banking Corp (ASX: WBC) yesterday flagged a $1.6 billion COVID-19 provision for bad loans. National Australia Bank Ltd (ASX: NAB) added $1.61 billion to its impaired loans provisions on Monday, including $800 million directly related to the impact of the virus.
ASX bank shares have seen a muted recovery from the March slump. Dividend stalwarts, investors have been avoiding the shares on fears dividends will be slashed. NAB did slash its dividend on Monday, cutting the interim dividend by 60%. The bank surprised with a 51% fall in interim cash earnings and a $3.5 billion capital raising.
ASX tech sector roars
Other sectors have seen more action with investors. The ASX technology sector has seen the Afterpay Ltd (ASX: APT) share price soar 250% from its March low. The buy now, pay later provider has assured investors it has no requirement to raise additional capital in the foreseeable future.
Afterpay surprised on the upside this month, reporting that March had been its third-highest underlying sales month on record. Online sales in Australia and New Zealand showed a marked uptick in the second half of March while in-store volumes were significantly down.
Return to normal?
As stores look to reopen, many are hoping for a return to 'normal'. This would drive sharemarkets higher as production and profitability return to previous levels. But the concern about consumer behaviour remains. With many out of a job, demand is unlikely to return to previous levels and may have shifted focus.
The outcome for both the economy and sharemarket remains unclear. To fully relax restrictions, a vaccine for coronavirus may need to be found which could take some time. What is clear is that a recovery will come eventually as the economy moves through its cycles.
