6 September 2021
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘green’ and
three are flashing ‘amber’. Cyclical conditions have been driven by an
unprecedented surge in liquidity from central banks and accompanying fiscal
expansions although, looking ahead, commodity markets will face an
inevitably slowing monetary momentum. An acceleration in global growth,
reflected in upgraded forecasts for 2021, is concealing a tendency for
weakening growth through the course of the year and into 2022. The cyclical
positioning has been characterised as a peak and at risk of moving into a
‘downswing’ phase.
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Market Directions
Unprecedentedly loose monetary conditions are underpinning price
strength among a broad array of assets, including those of industrial and
precious metals. Speculative capital flows connected to retail investors are
supporting sector prices and offsetting the negative effect on mining
equities of physical market balances tilting into surplus due to a slowdown
in demand. Heavily hyped energy storage innovations are stoking interest
but, their impact on funding aside, are yet to have a meaningfully demand
effect. Persistence of a 1990s-style investment performance - when modest
sector equity price gains occurred in the midst of sometimes highly
disruptive macro conditions - remains the underlying theme. More...
Portfolio Performance and Positioning
Especially strong gains among Phase I and Phase II stocks, driven by
improved interest in the uranium sector, drove strong overall returns in the
past week while weaker iron ore prices constrained the performance of the
market leaders. Backed by favourable monetary conditions, a general
willingness among retail investors to take speculative risks continues to
favour the earliest stage companies which also offer uncorrelated returns
from discovery opportunities. Although further along the development path,
Phase II companies are among the riskiest investment options due to their
indebtedness, heavy reliance on execution success and need for strong global
economic conditions to sustain sales. Portfolio models remain biased to the
Phase I stock category with cash positions reflecting the cyclical risks
associated with slowing rates of monetary expansion and output growth.
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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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