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Market Thoughts: Yield Curve Inversion; Hong Fok And More

|Includes: Amazon.com, Inc. (AMZN), FB, HFOKF, YLDGY
Summary

Sharing market thoughts as we start the new week with tools and data from the Sigma by Hydra X trading platform.

Headlines this weekend are all about the buying wave which has hit 10-year Treasuries, which has triggered the first Treasuries yield curve inversion for the first time since 2007. This move follows a Fed policy shift and a less sanguine economic outlook. Viewed as a reliable harbinger of an impending recession and rate-cutting cycle within the next 18 months, markets sold off into the weekend.

The S&P 500 fell back into its congestion zone on Friday, as the Fed decided Wednesday to hold interest rates, taking a dovish turn from earlier estimations by the Committee that two rate hikes would occur in 2019. This could be a breakout-and-restest entry opportunity for bulls; we continue to wait for a clearer signal before embracing the bull story.

FB continues to trade in a tight range, as the surfeit of negative news continued to abound. It was reported on Thursday that millions of user passwords were stored in the clear on its servers, readable by its employees. It seems as if the market has become immune to the abundance of controversies surrounding the company. $160 has proven inviolate since January.

AMZN broke above a near 6-month resistance, even as this week saw analysts covering a range of sectors all pointed to the giant as potentially disrupting the industries they covered. Analysts covering stocks as diverse as Costco, FedEx, XPO, MongoDB and Ulta all raised worries [Wall Street analysts this week are increasingly worried about Amazon hurting the stocks they cover] that Amazon could be emerging as a competitor in industries ranging from retail to shipping and logistics, and database software to beauty.

The latent disruptive effects the tech giant could have across disparate industries is extraordinary. Technically, AMZN has rallied since a Morning Star formed in late Dec 2018. The stock has found support from its 200-day SMA over the past few months, and has broken out above $1760-75 resistance. Friday’s retracement potentially sets up a classic break-and-retest long entry for those who are believers.

Frencken Group (SGX:E28) is worth keeping an eye on. The contract manufacturer partially shed a reputational overhang when Larry Low, the father of fugitive Jho Low of 1MDB fame, ceased to be a substantial shareholder last August. It also announced almost a doubling of earnings for Q4 2018 in February.

The stock gapped above its 200-day SMA on its earnings announcement, and has been on a run ever since, rising to a high of $0.58 to close the gap dating back to April 2018. That previous dip below its 200-day MA saw the beginning of a 10 month bear run for the counter. It will be interesting to see what this gap above brings, especially if the stock can clear immediate overhead resistance at $0.57-58, which coincides with the 61.8 fib retracement of the one year fall from Feb 2018 to Feb 2019.

We touched on Hong Fok (SGX:H30) in mid-week, highlighting its continuing ascent throughout March, on increasing daily volume. The reasons behind this rally remain a mystery. The SGX issued a (long overdue) query to the property developer on Friday over the ‘unusual price movements’, asking the company if it possessed any information that was not announced or if it was aware of any rumours that could explain the price movement. The company responded, stating – predictably – that it was unaware of any such information.

What we know that the company has engaged in a series of share buy backs over several days, acquiring over a million shares in the open market. Insider buying has been happening over several months: Cheong Sim Eng acquired 5 million shares via a married deal in Dec, taking his total interest in the stock to 18.8%; Cheong Pin Chuan also acquired 5 million shares via married deal 3 days later; Cheong Hooi Kheng acquired 651,100 shares the same month. Other insider purchases have also occurred in subsequent months.

On 1 March, Cheong Sim Eng relinquished his position as Joint Chairman of the company, but remains as Joint MD. On the same day, the company appointed Adrian Chan Pengee as an independent, non-executive director; Mr Chan is a senior partner at Lee & Lee and a leading M&A structurer.

None of the above fully account for the price movement we have seen. The overall picture, however, prompts speculation. This is not the first time privatization rumours have been associated with the company; even with the recent price rise, the company trades at a ~60% discount to NAV; at 0.5 P/B, its share price would be in the region of $1.35. The stock encountered profit taking at the $1.00 region on Friday, and we monitor it with great interest.

Yanlord (SGX:Z25) has been in a long term down trend since early 2018, but could be consolidating in form of a long term triangle. Share price seems to have found a support at $1.34 over the last 2 weeks, which is resistance-turned-support dating back to Oct 2018.

P/B forward estimates for the stock are hovering around lows last seen in 2015. Zhong Sheng Jian, Yanlord’s founder, Chairman and CEO has also been actively buying back shares, and his shareholdings are approaching 70% of the outstanding shares.