13 January 2025
Where are we in the Cycle?
Of the five PortfolioDirect cyclical guideposts, four are flashing
‘amber’ and only the Chinese growth momentum remains ‘red’, representing a
modest improvement in overall cyclical conditions. Sluggish productivity
growth, exacerbated by war in Europe, intensifying trade restrictions and
central bank efforts to quell inflation, have been a continuing constraint
on raw material demand expansion. Global monetary conditions are slowly
becoming less restrictive. US dollar strength has been removed as one
previously overt negative factor. Metal market supply anxieties have become
less severe. The cyclical positioning is consistent with a nearing change in
direction. More...
Market Directions
Capital flows connected to retail equity investors remain constrained by
the continuing impact of inflation on household savings and income.
Professional money, by continuing to discount a recession, has provided
market relief for the most growth oriented and well-established businesses.
Heavily hyped energy storage innovations are yet to affect metal demand as
meaningfully as once expected. Nor have higher metal price risk premiums,
where evident, had a correspondingly beneficial impact 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
Despite improved base metal and gold prices in the latest week, most
stocks lost ground. The disparity in performance was more marked among the
earlier stage companies than those with more advanced operations. Despite
adverse global settings and a continuing dearth of mineral discovery
success, Phase I stocks remain potential beneficiaries of lowered inflation
and easier monetary conditions, especially if replicated in Australia.
Companies in the Phase II development category remain a drag on investment
performance, despite demonstrable production potential and potential
proximity to profits, due to risks arising from relatively high indebtedness
and heavy reliance on execution success in sometimes unfamiliar markets and
untested management. The Phase III category is the most sensitive to capital
allocation decisions among institutional fund managers responding to
changing sector valuations and relative macro growth expectations.
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.
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The 'Steak or Sizzle' blog provides summary judgements on
the top performing ASX-listed resources stocks.
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