19 July 2021
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘green’ and
three are flashing ‘amber’. Cyclical conditions have been driven by the
unprecedented surge in liquidity from central banks and accompanying fiscal
expansions although, looking ahead, commodity markets will face an
inevitably slowing monetary momentum. An acceleration in global growth,
reflected in upgraded forecasts for 2021, is concealing a tendency for
weakening growth through the course of the year and into 2022. 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
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 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
Gains were made across all three development categories with the
majority of stocks in posting positive returns. Phase III, made up of the
largest and lowest risk sector stocks outperformed the Phase I and Phase II
categories. Uranium related stocks continued to lose ground after a brief
period of investor interest. 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. Phase II
companies, among the riskiest investment options due to their indebtedness,
heavy reliance on execution success and need for strong global economic
conditions to sustain sales, are struggling to match risk adjusted returns
with the more mature producers in the sector. 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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