"Our balance sheet has never been stronger," declared the board of a listed company in a statement to the Singapore Stock Exchange on April 10, 2015. Its shares were trading at $6.73 at the time. These days, you can pick up its shares for 6 cents apiece – if you have the stomach for a gamble.
The company in question – Noble Group in case you hadn't already guessed – put out its Lord Haw Haw-style statement in response to a note by prolific short-seller Muddy Waters.
If Noble was so thoroughly convinced it was in the right, of course, it could have taken to Singapore's notoriously draconian libel courts. But for Singapore's government, libel laws alone don't go far enough in protecting the delicate eyes and ears of one of the world's most educated citizenries. It's now pondering legislation to ban 'deliberate online falsehoods' – fake news.
The Lion City isn't alone. Asian nations seem to be legislating against fake news almost as fast as US President Donald Trump tweets about it.
Malaysia, unsurprisingly, was first out of the blocks. Ahead of its May 9 general election, the government of Prime Minister Najib Razak pushed its Anti-Fake News Law 2018 through Parliament on April 2. This establishes a jail sentence of up to six years and a fine of up to RM500,000 ($128,000) for anyone who "knowingly creates, offers, publishes, prints or disseminates" fake news – a term defined as "news, information, data or reports" which are "wholly or partly false".
Crucially, its application will extend beyond Malaysia's borders, as long as the "fake news" is about Malaysia or concerns a Malaysian citizen.
It's not hard to guess whose protection, above all others, Najib has in mind. He certainly didn't appreciate being declared Asia's worst finance minister by this publication two years ago. And that was hardly the worst bit of bad press he's faced.
STATE BUSINESS
When the business of investing becomes state business, fake news laws become an active danger to anyone with skin in the game.
Take the state fund Najib is now synonymous with. The Malaysian leader was only too eager to reject and dismiss the courageous reporting by The Wall Street Journal that blew the lid off corruption at 1MDB.
In effect, Najib is looking to extend the chilling effect of a domestic environment that considers independent media 'seditious' and ranks the country 144th out of 180 nations in Reporters Without Border's World Press Freedom Index. Would fake news laws have been used against the reporters involved or their sources inside Malaysia or maybe even the Journal's local distributors?
Even if it didn't derail the story, it may have delayed it or helped Najib and his allies muddy the waters. How would this have affected, for example, the $11 billion sovereign sukuk of April 2016?
But it's not just the effect on media that should worry investors. Even if it isn't part of their design, such laws will inevitably be turned upon those with things to say about bad businesses – especially those with links to state funds like 1MDB.
In Singapore, of course, the state sector plays an even bigger role in markets. State funds GIC and Temasek control vast shareholdings in many of the city's listed companies. Of course, the pair have a reputation far more pristine than that of 1MDB, and rightly so.
But scrutiny of their leadership – including that of Ho Chin, Temasek's long-standing chief executive and the wife of Prime Minister Lee Hsien Loong, is entirely legitimate and necessary. The money she manages, after all, belongs to the people of the country, and her decisions inevitably move markets and affect other investors.
SHORT-SELLERS SHORT-CIRCUITED?
All of this brings us back to where we started. What effect would a fake news law have on independent commentary on a particular business or a market in general, be it in the form of a short seller's report or a piece of research from an analyst?
The best place to look for answers might be Hong Kong. While the quasi-autonomous Chinese territory hasn't yet joined the rush to legislate on fake news, its regulators have been active in challenging market commentary they feel is unjustifiably negative – taking the bears by the horns, as it were.
The city's Securities and Futures Commission (SFC) has spent years battling ratings agency Moody's over a 2011 report entitled Red Flags for Emerging-Market Companies: A Focus on China. To cut a long story short, the report assessed some 61 Chinese entities, many listed in Hong Kong, and assigned "red flags" based on specific criteria around poor corporate governance.
The SFC complained that the report was not suitable for publication by a ratings agency. It also pointed to "glaring errors" in the report. In fact, a look at the lengthy findings of the Securities and Futures Appeal Tribunal reveals the exact number of errors: 13, out of 980 "red flags", about a 1% error rate. None affected the "negative outlier" companies – those that received the most red flags and, hence, suffered the biggest knock in share price.
Still, that was enough for the SFC – and would most certainly fall foul of any "fake news" law.
Moody's took the fight to the Court of Final Appeal. And Hong Kong's top court would do well to ponder on this question: was the SFC's action motivated by the fact that Moody's was inaccurate, or by the fact it was negative? As a Hong Kong-based corporate government specialist said of the Moody's report: "You definitely see far shoddier work on the long side".
Indeed, the last thing the investing world needs is to further alter the balance of market commentary away from incisive and critical reportage and toward the kind of public relations-led flim-flam and puffery that is already rampant. And that's before the public relations departments swing into overdrive – as Noble's did when Iceberg Research, another prominent critic of the firm, first struck.
To be sure, this isn't a question of encouraging egregiously negative commentary. Short-seller Andrew Left, for example, can't have too many complaints about being banned from the Hong Kong market over "false or misleading" commentary on Hong Kong-listed Chinese developer Evergrande. But the example of Left – who seemed to irk regulators as much with his sensationalist, tabloid brand of commentary as his inaccuracy – also offers another example of the dangers of fake news laws' chilling effect.
When Left took on Valeant Pharmaceuticals, his accusations over its relationship with pharmacy operator Philidor ultimately proved inaccurate, but they did flush out huge levels of impropriety that ultimately resulted in a criminal indictment.
Would that – or any other exposure of fraud, malpractice or misconduct that contains even the smallest inaccuracy – have survived under a fake news regime? Could short sellers, analysts and investigative journalists afford the risk of a six-year jail sentence?
However the situation shakes out, investors can only suffer if dissenting voices are silenced.
Fake news laws aren't sad. They're bad. And investors should be leaving governments in no doubt about their views.
