20 May 2019
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 ‘downswing’
with global growth decelerating, a loss of output momentum in China, the
largest national user of metal, and less supportive monetary policy settings
than have prevailed for most of the post-2009 period.
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Market Directions
The apparent failure of US-China trade talks has raised the probability
of weakening global growth during 2019. Financial markets are leading
expectations for one or more interest rate cuts in the later part of 2019, a
prospect helping to sustain US equity markets despite the otherwise adverse
change in conditions. The stronger US dollar - with its negative
connotations for US dollar denominated commodity prices - and expectations
of stalling global growth have pushed the Australian currency down, holding
up pricing for ASX-listed gold companies.
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Portfolio Performance and Positioning
Strong gains among Phase III stocks have reflected currency moves and,
ironically, weakening global growth prospects. Phase I and Phase II stock
prices continue to display heightened volatility stemming from their bottom
of the cycle leverage to even minor changes in market conditions.
Exploration companies have remained historically unpopular investments
compared with those on more established development or production paths.
The portfolio has a lowered Phase III weighting in anticipation of a
negative impact from an ongoing cyclical downturn with a correspondingly
higher cash position. No changes were been made to portfolio models.
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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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