2 March 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘red’ and three
‘amber’. ‘Trough Entry’ has been retained as the cyclical positioning
classification with lowered global growth expectations, a loss of output
momentum in China, the largest national user of metal, a persistently high
US dollar and less supportive policy settings acting as headwinds to
speedier cyclical progress.
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Market Directions
The overall market picture resembles the late 1990s heading into the
early 2000s when modest sector equity price gains occurred in the midst of
sometimes highly disruptive macro conditions, strong headline equity
indicators and major market losses. The balance of near term risks to sector
investment returns remains negative with equity prices in the leading US
market, stoked by favourable monetary policy settings, having been
overvalued prior to the COVID-19 shock and remaining overstretched since the
COVID-19 outbreak has damaged earnings. The subdued global growth outlook is
insufficient to absorb growing mine supplies.
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Portfolio Performance and Positioning
Sector losses accelerated dramatically as numbers of coronavirus
patients proliferated. Losses were evident across all development
categories. Earlier stage companies have not been more leveraged to the
weakening market conditions. Phase II stocks, covering those companies
most highly leveraged to immediate global growth prospects, were the weakest
part of the industry. No changes have been made to portfolio models which
remain biased to the Phase I stock category in anticipation of their
leverage to improved global growth momentum.
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Stock Reviews and Rating Analysis
PortfolioDirect rating reports analyse the quality and risk
attributes of proposed mineral developments. Rating criteria apply to mining and oil and gas stocks at any stage of
development. PortfolioDirect uses a five point rating
scale to measure the risk adjusted quality of proposed mineral developments
or companies.
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The 'Steak or Sizzle' blog provides summary judgements on
the top performing ASX-listed resources stocks.
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