6 December 2021
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, one is ‘green’, three
are flashing ‘amber’ and one has turned ‘red’, as the impact of the central
bank liquidity surge and accompanying fiscal compensation for the effects of
government lockdown mandates lessens. Upgraded growth forecasts for 2021 had
been concealing a tendency for weakening underlying growth through the
course of the year and into 2022 as pre-pandemic growth drivers resume their
primary roles. Supply side constraints in metal markets remain a positive
influence on cyclical conditions. The cyclical positioning has been
characterised as near a peak and at risk of moving into a ‘downswing’ phase.
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Market Directions
Unprecedentedly loose monetary conditions have been 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 equity prices and offsetting the negative effect on mining
equities of physical market balances tilting into surplus due to a slowdown
in demand. While heavily hyped energy storage innovations are stoking
interest and favourably impacting funding, they are yet to affect demand
meaningfully. Higher inflation, although possibly transitory, is
contributing to gold price support. 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.
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Portfolio Performance and Positioning
Losses among Phase I and Phase II stocks accelerated after Phase I
companies finished November with a small negative return following strong
gains in the prior months. A general willingness among retail investors to
take speculative risks, favouring the earliest stage companies, remains the
underlying investment thesis. Although further along the development path,
Phase II companies remain 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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