5 August 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 US Federal Reserve met expectations with a cut in its policy rate of
0.25 percentage points and simultaneously disappointed investors. The Fed
Chairman fumbled his reasoning about the reasons for the rate cut and the
associated forward guidance, describing the rate cut as a mid-cycle
adjustment which should not be taken as the first of many. Disappointment
over the Fed’s reluctance to offer more stimulus caused equity prices to
falter. As market sentiment cooled, resource sector equity prices joined
the downtown after having remained surprisingly resilient in the face of so
much negativity about global growth.
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Portfolio Performance and Positioning
Phase I stocks again outperformed the Phase II and Phase III development
stages although gains from the earliest stage stocks in the sector are
coming from historically low levels. Phase III stocks are taking the brunt
of deteriorating cyclical conditions having already shown the strongest
leverage to improved equity market conditions. The portfolio has an elevated
cash position in recognition of the ongoing risk of cyclical downturn in
metal markets. 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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