3 February 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘red’ and three
‘amber’. The cyclical positioning has been classified as ‘trough entry’
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 during which time
modest sector gains occurred in the midst of sometimes highly disruptive
macro conditions and strong headline equity indicators. Global growth
momentum is improving but 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, now overvalued and
the global growth outlook still insufficient to absorb growing mine supplies
to create more buoyant expectations.
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Portfolio Performance and Positioning
Losses in all development stages accelerated through January as fears
about the impact of the coronavirus outbreak in China took their toll on
global growth prospects and, more particularly, expectations about raw
material use. While Phase III companies had held up relatively well for most
of the month, losses for the leading stocks also grew more severe. Phase I
stocks are likely to show less leverage to cyclical weakness than in past
cycles and positive leverage to a sustained improvement in sentiment toward
the sector accompanying stronger global growth. No changes have been made to
portfolio models which remain biased to the Phase I stock category.
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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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