30 March 2020
Where are we in the Cycle?
The balance of near term risks to sector investment returns remains
negative. Equity prices in the leading US market remain stretched since the
COVID-19 outbreak has so badly damaged earnings. Already subdued global
growth would have been insufficient to absorb growing mine supplies. The
coronavirus outbreak raises that risk for the mining sector. 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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Market Directions
Losses accelerated dramatically among Phase I and Phase II stocks while
Phase III momentum — tied more closely to broader markets and policy
initiatives — improved. Exploration companies, with no near term earnings
to protect and depending on long term discovery potential, retain the
strongest leverage to an improvement in capital market conditions. Phase II
companies face the greatest risks due to potential market shrinkage.
Portfolio models remain biased to the Phase I stock category.
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Portfolio Performance and Positioning
The momentum swung strongly in favour of positive returns across the
breadth of development categories with especially strong gains among Phase I
stocks which had lost considerable ground recently. Exploration companies,
with no near term earnings to protect, unlike Phase II and Phase III
companies, and depending on long term discovery potential for creating
value, retain the strongest leverage to an improvement in capital market
conditions. Phase II companies face the greatest risks due to potential
market shrinkage. Portfolio models remain biased to the Phase I stock
category.
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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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