11 October 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 lessens. Upgraded
growth forecasts for 2021 had been concealing a tendency for weakening
growth through the course of the year and into 2022 as pre-pandemic
conditions return. Supply side constraints in metal markets remain a
positive influence. 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 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. Less supportive monetary conditions are negatively impacting
gold prices. 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
Returns among companies in more advanced development stages led
investment outcomes in the past week. Those in the Phase I category broke
evenly across advancing and declining outcomes. The biggest gains were from
idiosyncratic movements in relatively depressed Phase II companies. A
general willingness among retail investors to take speculative risks
continues to favour the earliest stage companies which also offer
uncorrelated returns from discovery opportunities. Although further along
the development path, Phase II companies are 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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