Investors ignore dangerous press freedom crackdown


“Western media restrictions are surely putting global investors in China at a disadvantage,” said Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong. “Few of Huarong’s investors have a deep understanding of the financial giant’s business, and its dollar obligations will only hold as long as government support is implied. Using a gray area naturally leads to greater volatility. “


Anne Stevenson-Yang, research director of activist investor J Capital Research and expert on the world’s second largest economy, agrees that a lack of transparency increases risks for investors.

“Can you blindly throw a dart and make money investing in China?” That’s what a lot of Chinese citizens have done, ”she said. “But can you blindly lose money doing this?” Yes.”

China is not the only one to arm the granting of visas. Once popular border markets such as Ethiopia and Myanmar have also jailed or expelled foreign and local journalists, making it almost impossible to know what is really going on on the ground. As a result, capital inflows from the United States and elsewhere came to a screeching halt.

Some of the measures used by governments to intimidate media workers are making headlines, such as the forced shutdown of pro-democracy Apple Daily in Hong Kong or the detention of a Belarusian opposition journalist after the government forced the commercial plane on which he was traveling to divert to Minsk and ashore. But less sensational actions – like harassing journalists at work or passing “fake news” laws that allow governments to censor critics under the guise of curbing disinformation – can have an equally frightening effect.


In Turkey, the world’s most prolific jailer of journalists outside of China, two Bloomberg News reporters face two to five years in prison for allegations they tried to “undermine” the economy in an article of August 2018 on a currency shock. The pound had then lost more than 40 percent of its value against the dollar during months of tension with the United States – a decline that Turkish authorities blamed on foreign speculators attacking the currency. Last year, the country’s banking regulator broadened the definition of manipulative trading to include the dissemination of “misleading or misleading information” about financial assets through the media; prosecutors in the journalists case have indicted 36 people over social media comments deemed critical of the economy and banks.

Even in countries that tout their democratic credentials, working life has become more difficult for journalists. In the United States, unprecedented numbers of journalists have been assaulted, arrested or prevented from doing their jobs during the 2020 protests, and dozens more have been arrested so far this year. Brazil is just one of many countries in Latin America where pandemic response measures have restricted the media’s ability to report freely and the public’s ability to access information.

And rights can erode at an alarming rate. In Hong Kong, once Asia’s freest place to live and do business, journalists now fear prosecution after China imposed a sweeping national security law. Authorities have proposed restricting journalists’ access to the city’s company register, a move the International Chamber of Commerce warns will increase opportunities for “corruption, money laundering and fraud.” The Biden administration has also warned investors about the risks of doing business in Hong Kong as China exerts more control.

But even as Hong Kong and China crack down on press freedom, financial markets are booming. So far this year, Hong Kong IPOs are the largest since at least 2010. According to the Institute of International Finance, about 40% of the US $ 28 billion invested in emerging market assets in June have been invested in Chinese stocks and bonds. Chinese government bonds have become a staple in the portfolios recommended by UBS Group AG and JPMorgan Chase & Co.

Controls and balances

Some large institutional investors, however, are paying more attention to social issues. German insurer Allianz SE includes press freedom among 18 indicators in its ESG framework for emerging countries, underlining its importance in maintaining “checks and balances” on governments. The French bank BNP Paribas SA also classifies press freedom among its ESG criteria.

“ESG, to the extent that it matters and funds describe themselves as ESG compliant, need to incorporate measures at the sovereign level, not just corporate measures,” said Malik of Tellimer.

But for now at least, most ESG efforts tend to focus on environmental rather than social considerations. Emissions are easier to measure and less subjective than free speech, and companies can be more easily held accountable.

There are reasons to see the change coming. Ten years ago, issues such as climate impact, diversity on the board of directors or sexual harassment in the workplace also received little investor attention. But younger, more socially aware consumers have used social media to collectively force businesses to take these issues into account. And as the proportion of investors belonging to generations Y and Z increases, the range of ethical problems that companies are called upon to solve widens.

Staff applaud Chan Pui-man, right, associate editor of Apple Daily and Lam Man-chung, executive editor of Apple Daily after sending the final edition to printers. Credit:PA

Adding press freedom to the list can also benefit those looking for investments. When a newspaper closes, local government borrowing costs rise because reduced scrutiny makes investors less comfortable, according to a 2019 report in the Journal of Financial Economics.

Freedom of the press “is a very basic thing that has to be in place before you can have meaningful ESG metrics,” said Perth Tolle, founder of Life + Liberty Indexes, which invests in countries based on various third-party rankings. freedoms. The Freedom 100 Emerging Markets ETF, which tracks the Tolle index, has no holdings in Turkey or China and has also reduced its position in Poland in recent years amid growing concerns over state erosion of law in the country. The benchmark MSCI Emerging Markets Index – which the Tolle index outperformed this year – is exposed to the three countries.

Most investors simply ignore human rights concerns when it comes to allocating capital, Tolle added.

“The settings are available, the problem with Wall Street is they don’t make money with them, and they don’t like it,” said Tolle, who was born in China and now lives in Texas. “In places that don’t have press freedom, do you think they will have freedom for stock or bond analysts? “

The issue of press freedom remains off the radar of many companies, and it is difficult to generalize its impact for investors in different countries.

“In my opinion, the importance of authentic and credible journalism is becoming increasingly important. “

Jim O’Neill, former chief economist at Goldman Sachs

But the gradual erosion of rights should worry investors, according to Jim O’Neill, the former chief economist of the Goldman Sachs group who coined the acronym BRICs for Brazil, Russia, India and China.

“Investors and businesses should care a lot about press freedom, and editorial independence is something that should be cherished by everyone, including business people,” he said.

“In my opinion, the importance of authentic and credible journalism is becoming increasingly important. “


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