6 April 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.
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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 anticipating a quick resolution
to earnings uncertainty. Pre-coronavirus global growth rates would have
already been insufficient to absorb growing mine supplies. 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.
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Portfolio Performance and Positioning
Market momentum improved in late March following large losses throughout
most of the first quarter. Especially strong gains among Phase I stocks
follow accelerating losses through the quarter. Exploration companies, with
no near term earnings to protect, unlike Phase II and Phase III companies,
and depending on long term discovery potential for creating value, retain
the strongest leverage to an improvement in capital market conditions. Phase
II companies face the greatest risks due to potential market shrinkage.
Portfolio models 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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