13 May 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 global growth decelerating, 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
The downswing in equity prices continued apace as US-China trade talks
faltered. Resource stocks continued their decline as fears about global
growth, partially related to the failure to resolve US-China trade tensions,
rose. Market trends continued to imply that central banks will mitigate the
negative impact of slower growth on demand for metals. Falling prices of
high yield corporate bonds suggested some marginal deterioration in funding
conditions for mine developers.
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Portfolio Performance and Positioning
Several Phase II stocks showed relative strength to produce an overall
positive return during the week. Phase I stocks offset these gains as
exploration companies remained historically unpopular investments compared
with those on more established development or production paths. The share
prices of Phase III companies have begun to react to weakening cyclical
conditions. In anticipation of this move persisting, the portfolio has a
lowered Phase III weighting with a correspondingly higher cash position. 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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