9 March 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘red’ and three
‘amber’. ‘Trough Entry’ has been retained as the cyclical positioning
classification with lowered global growth expectations, a loss of output
momentum in China, the largest national user of metal, a persistently high
US dollar and less supportive policy settings acting as headwinds to
speedier cyclical progress. The coronavirus outbreak has aggravated the
impact of these negative influences on cyclical positioning.
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Market Directions
The balance of near term risks to sector investment returns remains
negative with equity prices in the leading US market, stoked by favourable
monetary policy settings, having been overvalued prior to the COVID-19 shock
and remaining overstretched since the COVID-19 outbreak has damaged
earnings. Already subdued global growth would have been insufficient to
absorb growing mine supplies. The coronavirus outbreak raises that risk for
the mining sector. 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 under control.
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Portfolio Performance and Positioning
Losses moderated but were again evident across all development
categories with little differences in leverage to the weakening market
conditions. Phase II stocks, covering those companies most highly
leveraged to immediate global growth prospects, have been the weakest part
of the industry over the past four weeks. No changes have been made to
portfolio models which remain biased to the Phase I stock category in
anticipation of their leverage to improved global growth momentum later in
2020.
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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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