23 August 2021
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are ‘green’ and
three are flashing ‘amber’. Cyclical conditions have been driven by the
unprecedented surge in liquidity from central banks and accompanying fiscal
expansions although, looking ahead, commodity markets will face an
inevitably slowing monetary momentum. An acceleration in global growth,
reflected in upgraded forecasts for 2021, is concealing a tendency for
weakening growth through the course of the year and into 2022. The cyclical
positioning has been characterised as being near a peak and at risk of
moving into a ‘downswing’ phase.
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Market Directions
Unprecedentedly loose monetary conditions are 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 remain too far in the future to meaningfully affect current metal
demand. 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
Large losses occurred across all three development categories in the
past week with large majorities of stocks posting losses in each pushing the
outcomes for the month to date into negative returns. Phase III stocks, the
most mature in the sector, continue to track broader equity market trends.
Phase II companies, among the riskiest investment options due to their
indebtedness, heavy reliance on execution success and need for strong global
economic conditions to sustain sales, are struggling to match risk adjusted
returns among the more mature producers in the sector. A general willingness
among retail investors to take speculative risks, as long as monetary
conditions remain favourable, continues to favour the earliest stage
companies which also offer uncorrelated returns from discovery
opportunities. 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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