13 September 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 momentum of central
bank liquidity support subsides. An unprecedented surge in liquidity from
central banks and accompanying fiscal expansions are less supportive.
Upgraded growth forecasts for 2021 had been concealing a tendency for
weakening growth through the course of the year and into 2022. Supply side
constraints 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 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, their impact on funding aside, they are yet to have a meaningfully
demand effect. 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
Gains among Phase I stocks again led returns in the past week although
the most significant investment theme revolved around the negative impact of
deteriorating iron ore market conditions on the investment returns of sector
leaders. Backed by favourable monetary conditions, 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. Several Phase II companies performed
relatively well in the past week after previously underperforming.
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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