15 February 2021
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, one is ‘red’, three are
‘amber’ and one is green. Cyclical conditions have been disproportionately
affected by the unprecedented surge in liquidity from central banks.
Looking ahead, commodity markets are at risk from an inevitably slowing
monetary momentum, in the absence of other supporting factors. Stronger
anticipated growth for 2021, as a whole, conceals a tendency for weaker
outcomes through the course of the year and for levels of global output to
remain below 2019 outcomes. 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
A weakening US dollar and unprecedentedly expansionary monetary
conditions have underpinned recent industrial metal price strength as well
as a broader array of asset price gains, including for gold. Strong
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.
Much heralded energy storage innovations 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
The number of advancing stocks outstripped the number of stocks with
declining prices with Phase I stocks, benefitting from renewed investor
interest in uranium, again showing greater relative strength. Improved
market liquidity and a general willingness among retail investors to take
speculative risks continue to favour the earliest stage companies. Phase I
stocks also offer uncorrelated returns from discovery opportunities. Gains
among Phase II companies have again struggled to match gains in other parts
of the market. Phase II companies are among the riskiest investment
options, being the most indebted and heavily reliant on execution success.
Portfolio models are biased to the Phase I stock category. Cash positions
were reduced recently to accommodate greater exposure to uranium related
companies and a small number of Phase II companies which had lost ground
against the sector.
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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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