2 August 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 the
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 being near 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 remain too far in the future to affect current metal demand. 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
All three development categories lost ground in the first week of August
with a large majority of Phase I and Phase III stocks posting losses. The
overall return of the macro-adjusted portfolio was in line with the
benchmark. Phase III stocks, the most mature in the sector, continue to
track broader equity market trends. Phase II companies, among the riskiest
investment options due to their indebtedness, heavy reliance on execution
success and need for strong global economic conditions to sustain sales, are
struggling to match risk adjusted returns among the more mature producers in
the sector. A general willingness among retail investors to take speculative
risks, as long as monetary conditions remain favourable, continues to favour
the earliest stage companies which also offer uncorrelated returns from
discovery opportunities. 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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