20 April 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, three are ‘red’ and two
‘amber’. ‘Trough Entry’ has been retained as the description of the
cyclical positioning with falling global growth expectations, a persistently
high US dollar and a metal price term structure signaling abundant supplies.
The international policy stance is more supportive but well short of fully
compensating for the impact of COVID-19 remediation measures. China’s
improved growth momentum leaves the economy with ample excess capacity.
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Market Directions
The balance of near term risks to sector investment returns remains
negative although credit markets have regained their composure. Rebounding
equity prices in the leading US market are optimistically anticipating a
quick resolution to earnings uncertainty. Pre-coronavirus global growth
rates would have already been insufficient to absorb growing mine
supplies. A return to 1990s style sector investment performance - when
modest sector equity price gains occurred in the midst of sometimes highly
disruptive macro conditions - remains possible after public health risks are
brought under control.
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Portfolio Performance and Positioning
Continuing gains in the earlier stage Phase I and Phase II stocks have
outstripped results from the Phase III category with the balance between
advancing and declining stocks more even in the past week. Exploration
companies, depending on discovery potential for creating value, retain the
strongest leverage to an improvement in capital market conditions because of
their working capital needs. Phase II companies face the greatest risks from
potential demand shrinkage. Portfolio models remain biased to the Phase I
stock category.
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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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