9 December 2019
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘red’ and three
‘amber’. The cyclical positioning has been classified as ‘downswing’ with
decelerating global growth forcing a negative change to expectations, a loss
of output momentum in China, the largest national user of metal, and less
supportive monetary policy settings than have prevailed for most of the
post-2009 period.
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Market Directions
US equity prices established a new record before hitting the skids over
trade policy. By the end of the week, a market rebound had already started
when Trump’s chief economic advisor Larry Kudlow said that Chinese and US
officials were close to an agreement. On the last day of the week, the
monthly employment data gave the market another shot in the arm. The
upward drift in yields on high risk corporate bonds is a sign of tougher
funding conditions for project developers and is consistent with a downward
move in valuations for Phase II companies with funding needs or debt
servicing obligations.
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Portfolio Performance and Positioning
Stock price movements in all development categories were sluggish
despite higher volatility in broader market indices. The largest stocks in
the sector experienced negative returns. The large losers in the prior
month - Phase I and Phase II stocks - made small gains. Overall, declining
stocks outnumbered advancing stocks in the models. No changes have been
made to portfolio models which remain biased to the Phase I stock category.
Phase I stocks are likely to show less leverage to cyclical weakness since
they are starting from already historically low price levels.
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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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