20 September 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 influence of the
unprecedented surge in liquidity from central banks and accompanying fiscal
expansions become less supportive. Upgraded growth forecasts for 2021 had
been concealing a tendency for weakening growth through the course of the
year and into 2022. Supply side constraints on metal supply remain a
positive influence. 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 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, their impact on funding aside, they are yet to have a meaningfully
demand effect. Less supportive monetary conditions are 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. More...
Portfolio Performance and Positioning
Backed by a long awaited surge in uranium prices, Phase I and Phase II
stocks made strong gains in the past week while sliding iron ore prices
remained a negative influence on returns within the Phase III category.
Backed by favourable monetary conditions, 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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