18 October 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 impact of the central
bank liquidity surge and accompanying fiscal compensation for government
lockdown mandates lessens. Upgraded growth forecasts for 2021 had been
concealing a tendency for weakening underlying growth through the course of
the year and into 2022 as pre-pandemic growth drivers resume their primary
roles. Supply side constraints in metal markets remain a positive influence
on cyclical conditions. 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 have been 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 equity prices and offsetting the negative effect on mining
equities of physical market balances tilting into surplus due to a slowdown
in demand. While heavily hyped energy storage innovations are stoking
interest and favourably impacting funding, they are yet to affect demand
meaningfully. Less supportive monetary conditions are negatively impacting
gold prices. 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.
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Portfolio Performance and Positioning
Returns among companies at the earliest development stages bounced back
in the past week, helped significantly by leverage to the early stages of a
uranium price recovery. 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. 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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