25 May 2020
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, three are ‘red’ and two
‘amber’. ‘Trough Entry’ has been retained as the description of the
cyclical positioning with falling global growth expectations, a persistently
high US dollar and a metal price term structure signaling abundant supplies.
The international policy stance is more supportive but well short of fully
compensating for the impact of COVID-19 remediation measures. China’s
improved growth momentum leaves the economy with ample excess capacity.
More...
Market Directions
The balance of near term risks to sector investment returns remains
negative although credit markets have regained their composure. Rebounding
equity prices in the leading US market are optimistically anticipating a
quick resolution to earnings uncertainty and return to growth.
Pre-coronavirus global growth rates would have already been insufficient to
absorb growing mine supplies. Even with production losses, market balances
will now tilt more firmly into surplus. Expectations of medium term deficits
supporting sector valuations will not be realised. A return to 1990s style
sector investment performance - when modest sector equity price gains
occurred in the midst of sometimes highly disruptive macro conditions -
remains possible after public health risks are brought under control.
More...
Portfolio Performance and Positioning
Gains were made across all three development categories with Phase I and
Phase II running ahead of the sector benchmark in the past week and for the
month of May to date. Larger stocks in the Phase III category continued to
push higher, assisted by institutional money flows. Exploration companies
retain the strongest leverage to an improvement in capital market conditions
because of their ongoing working capital needs and frequency of recourse to
capital markets. Realising their discovery potential also permits returns
uncorrelated with macroeconomic conditions. Phase II companies face the
greatest risks from potential demand shrinkage as they are the most indebted
companies in the sector. Portfolio models remain biased to the Phase I stock
category with maintenance of a large cash position reflecting ongoing
downside risks.
More...
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.
More...
The 'Steak or Sizzle' blog provides summary judgements on
the top performing ASX-listed resources stocks.
More...