12 July 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 apparent 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
nprecedentedly 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
Phase I stocks lost significant ground in the past week to stocks in
both the Phase II and Phase III categories, with a large majority showing
negative returns. Among the Phase I losers were uranium related stocks as
well as pure-play explorers. 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
the attraction of cyclical plays across the broader market appears to have
diminished. 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 with the more mature producers in the sector. 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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