3 June 2019
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 ‘downswing’ with
decelerating global growth forcing a negative change to expectations, a loss
of output momentum in China, the largest national user of metal, and less
supportive monetary policy settings than have prevailed for most of the
post-2009 period.
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Market Directions
The downward trajectory in equity prices continued. Aggravating already
pronounced signs of weakening growth, the US president tweeted out his
intention to tax goods imported from Mexico. Chinese officials will now be
wondering why they should bother seriously pursuing a deal if the US is so
prepared to renege on an already concluded agreement. Resource sector
equity prices have continued to display unusual resilience in light of the
broader macro position. Financial market pricing reflects expectations of
multiple reductions in US interest rates and easier monetary conditions in
Europe.
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Portfolio Performance and Positioning
All classes of stock lost ground in the past week. Phase I companies
faced the heaviest losses for the month as a whole even as the market
leaders posted a positive result helped by favourable moves in iron ore
prices. Over the past month, exploration companies have remained
historically unpopular investments compared with those on more established
development or production paths. The portfolio has a lowered Phase III
weighting in anticipation of a negative impact from an ongoing cyclical
downturn with a correspondingly higher cash position. No changes were been
made to portfolio models.
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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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