20 January 2020
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 ‘trough entry’
with lowered global growth expectations, a loss of output momentum in China,
the largest national user of metal, a persistently high US dollar and less
supportive policy settings acting as headwinds to speedier cyclical
progress.
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Market Directions
The overall market picture resembles the late 1990s during which time
modest sector gains occurred in the midst of sometimes highly disruptive
macro conditions and strong headline equity indicators. Global growth
momentum is improving but the balance of near term risks to sector
investment returns remains negative with equity prices in the leading US
market, stoked by favourable monetary policy settings, now overvalued and
the global growth outlook still insufficient to absorb growing mine supplies
to create more buoyant expectations. Oil price risks are biased to the
upside but the balance of metal market risks point to continuing weakness in
cyclical conditions.
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Portfolio Performance and Positioning
Sector leaders, helped by new US equity price records and positive macro
news around global trade, continued to post gains along with a stronger
showing among earlier stage development companies. Phase I and Phase II
companies continue to lag for the month to date. No changes have been made
to portfolio models which remain biased to the Phase I stock category.
Phase I stocks are likely to show less leverage to cyclical weakness than in
past cycles and positive leverage to a sustained improvement in sentiment
toward the sector which would accompany stronger global 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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