27 April 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.
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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. Pre-coronavirus global growth
rates would have already been insufficient to absorb growing mine
supplies. 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.
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Portfolio Performance and Positioning
Gains in the earlier stage Phase I and Phase II stocks have outstripped
results from the Phase III category through the month although the pace of
gains slackened during the past week. Exploration companies, depending on
discovery potential for creating value, retain the strongest leverage to an
improvement in capital market conditions because of their working capital
needs. Phase II companies face the greatest risks from potential demand
shrinkage. Portfolio models remain biased to the Phase I stock category with
maintenance of a large cash position reflecting ongoing downside risks.
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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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