12 June 2023
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, three are flashing
‘amber’ and two have turned ‘red’. Sluggish pre-pandemic productivity
growth, now exacerbated by war in Europe and central bank anti-inflation
measures, have re-emerged as constraints on demand expansion. The post-2020
central bank liquidity surge is being reversed, with an increasingly evident
effect on bank solvency and capital availability. A rising US dollar, one
previously overt negative factor, has stalled after a modest reversal of
prior gains. Supply side constraints in metal markets have become less
severe. The cyclical positioning has been characterised as being in a
‘downswing’ phase. More...
Market Directions
Withdrawal of unprecedentedly supportive monetary conditions and erosion
of real incomes by surging inflation have stemmed speculative capital flows
connected to retail investors. Professional money, by continuing to discount
a recession, provides some market relief. While heavily hyped energy
storage innovations are stoking sector interest, they are yet to affect
metal demand meaningfully. Fears of market disruption due to geopolitical
rivalries have raised metal price risk premiums without correspondingly
beneficial impacts on related equity valuations. New tax incentives are
encouraging relocation of mine development and downstream processing
capacity. 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.
More...
Portfolio Performance and Positioning
Stocks were split evenly between those posting losses and those making
gains although prices of larger companies and those with more advanced
development status were the most likely to have moved higher. Emphasising
the mixed outcomes, Phase I stocks headed the individual stock performance
rankings. Phase I returns remain the most threatened by weaker speculative
capital flows, and would be a primary beneficiary of any policy easing, but
continue to deliver value-enhancing discovery opportunities uncorrelated
with market conditions. Although further along the development path and
closer to profitability, Phase II companies carry risks arising from their
indebtedness and heavy reliance on execution success in sometimes unfamiliar
markets. Performance within the Phase III category is more likely to be
driven by institutional allocations responding to changing macro
conditions. Portfolio models remain biased to the Phase I stock category
with cash positions reflecting the cyclical risks. More...
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.
More...
The 'Steak or Sizzle' blog provides summary judgements on
the top performing ASX-listed resources stocks.
More...