27 November 2023
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, two are flashing
‘amber’ and three have turned ‘red’. Sluggish pre-pandemic productivity
growth, now exacerbated by war in Europe, intensifying trade restrictions
and reversal of the post-2020 central bank liquidity surge, has re-emerged
as a constraint on raw material demand expansion. A rising US dollar, one
previously overt negative factor, has stalled after a modest reversal of
prior gains. Supply side constraints in metal markets have become less
severe. The cyclical positioning has been characterised as a ‘downswing’
phase.
More...
Market Directions
Withdrawal of unprecedentedly supportive monetary and fiscal conditions
and erosion of the value of income and savings by surging inflation have
stemmed speculative capital flows connected to retail investors.
Professional money, by continuing to discount a recession, has provided some
market relief but surging costs of capital are placing a cap on equity
values. While heavily hyped energy storage innovations are stoking sector
interest, they are yet to affect metal demand meaningfully. Metal price risk
premiums have risen without correspondingly beneficial impacts on related
equity valuations. New tax incentives are diverting capital for mine
development and downstream processing capacity to sponsoring nations.
Persistence of a 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
Mixed results among the more advanced development categories accompanied
a preponderance of losses among Phase I companies whose performance remains
highly volatile. While Phase I returns remain the most threatened by weaker
speculative capital flows, the same companies would be primary beneficiaries
of any eventual monetary policy easing and may also deliver value-enhancing
discovery opportunities uncorrelated with market conditions. Although
further along the development path and closer to profitability, Phase II
companies carry risks arising from their indebtedness and heavy reliance on
execution success in sometimes unfamiliar markets. Performance within the
Phase III category is more likely to be driven by institutional allocations
responding to longer term views of changing macro conditions and cross
sector valuations. A prolonged cyclical reversal in market values for the
bulk of the sector has warranted a reassessment of which stocks are likely
to have the greatest leverage to a momentum change in conditions. 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...