21 October 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
decelerating global growth forcing a negative change to expectations, 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
US and global equity markets moved generally higher as nervousness over
the course of monetary policy and future international trade conditions
played a lesser role in farming market outcomes. The latest round of
corporate earnings results helped sustain market prices. Metal prices
continued to display surprising resilience against a backdrop of pessimism
about the global growth outlook. Resource sector equity prices weakened,
against the trend in broader equity market conditions. Some weakening in
the US dollar will have contributed to stronger metal price outcomes.
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Portfolio Performance and Positioning
Phase I company results, reflecting scope for discovery driven returns,
continue to produce relatively strong gains. Phase III stocks, which are
the investments most vulnerable to changed macroeconomic conditions via
institutional asset allocation decisions, have taken the brunt of the impact
from lowered growth expectations. Phase II stocks, in the process of trying
to expand production, cannot generate the discovery surprise of Phase I
companies and risk being unable to meet production targets. No changes were
made to the portfolio models. Portfolio models remain tilted toward an
exposure to Phase I companies trading at historically depressed prices.
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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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