4 May 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, three are ‘red’ and two
‘amber’. ‘Trough Entry’ has been retained as the description of the
cyclical positioning with falling global growth expectations, a persistently
high US dollar and a metal price term structure signaling abundant supplies.
The international policy stance is more supportive but well short of fully
compensating for the impact of COVID-19 remediation measures. China’s
improved growth momentum leaves the economy with ample excess capacity.
More...
Market Directions
The balance of near term risks to sector investment returns remains
negative although credit markets have regained their composure. Rebounding
equity prices in the leading US market are optimistically anticipating a
quick resolution to earnings uncertainty and return to growth.
Pre-coronavirus global growth rates would have already been insufficient to
absorb growing mine supplies. Even with production losses, market balances
will now tilt more firmly into surplus. Expectations of medium term
deficits supporting sector valuations will not be realised. A return to
1990s style sector investment performance - when modest sector equity price
gains occurred in the midst of sometimes highly disruptive macro conditions
- remains possible after public health risks are brought under control.
More...
Portfolio Performance and Positioning
Large gains in the Phase I category of stocks outstripped positive
returns in other categories during April as investment losses emerged
elsewhere. Exploration companies, depending on discovery potential for
creating value, retain the strongest leverage to an improvement in capital
market conditions because of their working capital needs but may also
produce returns uncorrelated with macroeconomic conditions. Phase II
companies face the greatest risks from potential demand shrinkage as many
are at their most indebted in the early years of their production phase.
Portfolio models remain biased to the Phase I stock category with
maintenance of a large cash position reflecting ongoing downside risks. No
changes to models has been suggested.
More...
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.
More...
The 'Steak or Sizzle' blog provides summary judgements on
the top performing ASX-listed resources stocks.
More...