12 August 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
Unusually strong intraday swings modified the net change in equity
prices but a swift sentiment switch during the week left markets reeling.
Moves in prices of equities, bonds, foreign exchange and commodities marked
the week. Resource sector equity indices, consistent with the commodity
price moves, were led lower by the iron ore exposed market leaders while
gold stocks rose. The small end of the market - mostly exploration companies
- posted gains. The widening disparity between copper price and bond yield
moves implies one or other of the bond or copper markets appears to have a
mistaken view about the prospects for global growth.
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Portfolio Performance and Positioning
Phase I stocks continued to outperform stocks in the Phase II and Phase
III development stages although gains from the earliest stage stocks in the
sector are coming from historically depressed levels. Phase III stocks are
taking the brunt of deteriorating cyclical conditions after having tracked
equity prices higher despite the forecast for a downturn in rates of
economic activity. The portfolio has an elevated cash position and exposure
to Phase I companies in recognition of the ongoing risk of cyclical weakness
in metal markets. No changes were been made to portfolio models.
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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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