25 January 2021
Where are we in the Cycle?
Where are we in the Cycle? Of the five PortfolioDirect cyclical
guideposts, one is ‘red’, three are ‘amber’ and one is green. Cyclical
conditions have been disproportionately affected by the unprecedented surge
in liquidity from central banks. Commodity markets are at risk from an
inevitably slowing monetary momentum, in the absence of other supporting
factors. Stronger anticipated growth for 2021, as a whole, conceals a
tendency for weaker outcomes through the course of the year and for levels
of global output to remain below 2019 outcomes. 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
A weakening US dollar and unprecedentedly expansionary monetary
conditions have underpinned recent industrial metal price strength as well
as a broader array of asset price gains, including for gold. Strong
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.
Emerging energy storage innovations remain too far in the future to have an
effect now on 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
Phase II companies sprang to life even as Phase I stocks, which had been
leading the sector performance, lost ground. All development categories
have benefitted from near term optimism about the world economy. Improved
market liquidity and a general willingness among retail investors to take
speculative risks have given added impetus to the earliest stage companies.
Phase I also offers uncorrelated returns from discovery opportunities. Gains
among Phase II companies have, until the past week, been relatively modest
for the risks incurred, since these are among the most indebted firms in the
sector and heavily reliant on execution success. Portfolio models are
biased to the Phase I stock category. Cash positions have been reduced
recently to accommodate greater exposure to uranium exposed companies and a
small number of Phase II companies which had lost ground against the sector.
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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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