Can disinformation cause disorder? The impact of false information on financial markets in Africa.

Financial markets such as stock exchanges, currencies or bond markets are notoriously sensitive to any political or natural event that might have an impact on a country’s economy and is therefore uniquely susceptible to false information.

False information has grown to become a serious threat for financial markets around the world - including Africa - affecting businesses and individuals in multiple different ways.

False information can scare away further investment

The commitment to invest in a country or region by businesses and international organisations depends to what extent they trust that their money will be used effectively. To form an opinion, they gather information about the stability, economic growth and existing trends in the region. Essentially, they rely on stories and are consequently vulnerable to false information¹.

The use of social media and software to inform investment decisions has only aggravated this vulnerability. Reacting to hoaxes and rumours can also have a negative effect on investors if they try to react quickly and fail to take a long-term perspective as suggested by financial publication Bloomberg².

There are multiple recent examples of how false information is resulting in lower levels of investments. Firstly, misinformation about the use of health interventions, such as vaccines, has made humanitarian organisations hesitant to further invest in Africa, out of fear of victimisation and loss of key infrastructure³.

Secondly, false information has also been linked to the burning of cell phone towers in Africa, which might be particularly costly for small start-ups who cannot afford to rebuild destroyed infrastructure⁴.

However, financial publication Bloomberg has noted that when investors invest, they should make long-term decisions and not react to short-term rumours.

Short sellers use disinformation in an attempt to see share prices decline in a bid to make profits

In 2018, a report by research organisation Intellidex, titled “Investment Research in the Era of Fake News”, found that short-seller Viceroy purposefully published negative reports on a number of South African companies, such as South African-based furniture retailer Steinhoff and Capitec bank, in a bid to see their share prices decline⁵.

Short selling means investing in an asset in such a way that the short seller gains when the value of the investment falls. When Viceroy first released its report into Capitec, its share price fell by 25% before recovering⁶.

Intellidex found that not only did Viceroy artificially attempt to impact the share prices by releasing reports at a sensitive time for these companies, but it also made “unsupported exaggerations” and often plagiarised from previous reports.

Spreading false information about food shortages can create of supply shortages and manipulate share prices⁷

In South Africa, this saw supermarkets being forced to introduce limits on the amount of items consumers can buy to avoid further shortages⁸.

In another incident in South Africa, crowds stood in long lines at liquor stores in August 2020 when a false message was doing the rounds through WhatsApp that the president was planning on banning liquor sales⁹.

The use of false information can artificially grow the share price

In 2017, the United States Securities and Exchange Commission regulator issued warnings that seemingly independent commentary about stock options may, in fact, be paid promotions and launched investigations into a number of companies that artificially attempted to inflate their prices¹⁰.

Some have been found to start paying journalists to write favourably about the company and then proceed to present these articles as a means to inflate the share price¹¹.

Finweek reported that these journalists would go on to duplicate the stories they have written by using a number of pseudonyms and successfully managed to influence the sentiment of the market.

In addition, spoof websites have become a growing trend to influence and manipulate the perception of the public. These websites imitate counterparts and claim to be the legitimate site to mislead the audience by sharing false information.

The writers of these articles would often fabricate their professional qualifications to increase the credibility of their reports.

False information can manipulate currencies to make a profit

A website ran a headline in 2018 which stated that South Africa’s president Jacob Zuma has resigned. Minutes after the story was published, the South Africa rand spiked before crashing as investors responded to the news ¹².

In a separate incident, 28 banks, including international powerhouses Barclays, JP Morgan and HSBC, were accused of manipulating the South African rand¹³.

The country’s Competition Commission believes that traders from different banks shared information and even posted fake bids or offers as part of efforts to manipulate the currency. Two people have already pleaded guilty to the actions¹⁴.

Mass withdrawals taking place at banks over false information about financial instability

After social unrest in parts of South Africa, the South African Reserve Bank called on consumers not to make mass withdrawals after false information emerged that it is recalling money from the public in 2020¹⁵.

In a similar incident in the United Kingdom in 2019, Metro Bank fell victim to false social media activity questioning the bank’s financial health, which led to thousands of customers lining up at the bank’s branches in an attempt to withdraw their savings¹⁶.

How should companies respond to reports of false information?

In light of the growth of false information and its negative impacts, companies and organisations should prepare a rapid-response protocol on how to respond to incidents of false information.

Stakeholders, including employees and shareholders, should also be educated on how to spot potential false information and where they can find credible information to reduce the possibility of harm.

The following steps developed by Cape Town-based business law firm Adriaans Attorneys¹⁷ are helpful for companies to limit the impact of false information on their business.

The steps in a possible protocol for a company should include:

Identify the threat

Ensure that the business knows exactly what the false claim is that is being made before deciding to respond to it. This is because it is of the utmost importance that an organisation’s response is in relation to the false information being shared, and not other rumours or hearsay.

Evaluate the level of threat

Think about what potential impact the false information can or may have on the organisation before responding to it, as companies should only respond to false information that can harm it. The business should think about how the false information relates to the organisation, or to a service or product sold, or does actually not directly impact sales.

Identify the truth

Take time to formulate responses to directly respond to the false information or claims being made with the truth. As much as possible, make use of sources to support the claims you are making.

Update all online presences of the business

It is therefore extremely important to ensure that any online presence is a reliable source of information where the false information is debunked for those looking for answers. While there are likely going to be people who continue to spread the false information that impacts the business, other clients or consumers might not be as naïve to believe the information before verifying it.

Formulate a press release and send it out to the media

Author a press release that both discredits the false information that is being shared, and brings to light the reality related to the claims. Make sure that the press release is sent out to media outlets that may be covering the area you operate in and try to gain the largest possible exposure to combat the negative effects of the false information.

Where possible, find the original source of the false information

It is important for those who helped to spread the false information to retract it and publish the truth. On social media, both the false information and accounts sharing the information can be reported.

Contact TRi Facts to support your business to reduce the risk of false information.

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Image: Adeolu Eletu on Unsplash

References:

Can disinformation cause disorder? The impact of false information on financial markets in Africa.

Image: Adeolu Eletu on Unsplash

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