8 October 2018
Where are we in the Cycle?
Peak metal prices were recorded in February 2018 in an already mature
metal price cycle with cyclical guideposts turning negative. Unusually
prolonged supply side constraints which have been offsetting the effect of
weak demand growth are losing their impact as newly initiated production
starts to flow in some metal categories. Monetary policy settings are
tightening as weak productivity constrains global growth potential leading
to a deceleration in activity growth rates with an adverse effect on metal
use.
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Market Directions
Market leading mining stocks have been running ahead of broader sector
indicators with negligible trickle down benefits to the remainder of the
market. Explorers, after posting three consecutive quarters of negative
returns, once again undershot the market leaders. The direction of growth
sensitive financial market indicators is at odds with the performance of
metal prices suggesting investor confusion and scope for readjustment.
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Portfolio Performance and Positioning
Modest gains were made across all portfolio segments with advances
running strongly ahead of declines among the Phase III stocks and a more
event split among stocks in the earlier development stages. The macro model
underperformed the benchmark by 0.5 percentage points over the week due to
lagging returns among the Phase II category. The macro portfolio remains
tilted toward advanced exploration efforts. Portfolio adjustments resulted
in a higher cash holding.
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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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