Dr. Mohamed A. Ramady
Publication Date: 
Mon, 2008-04-07 03:00

JEDDAH, 7 April 2008 — The turmoil in the world markets is having a knock-on effect on the regional stock markets, with the TASI Tadawul Index losing around 19 percent over the past three months.

While nervous profit-taking is to be expected, following on from the sharp and inexplicable rally of the Saudi index to 11,300 levels in early January, it is the professional coverage of the financial markets on some Arab satellite TV channels that is more worrying.

Objective reporting seems to be replaced by emotional analysis. It becomes a matter of concern when TV anchors start using subjective expressions of either misery or joy, depending on whether the Saudi market is in the red or the green.

The almost obsessive daily wall-to-wall diet of how the Saudi market index is performing is enough to make any sane investor jumpy, but it is the undisguised emotional attachment to events by some TV financial analysts that raises questions of impropriatory behavior.

Too often their body language, spluttering and faltering analysis, coupled with anguished facial expressions reveals it all, especially when the markets are “doing badly.” Equally unbounded joy, glee and much laughter greets sharp rallies, with some TV commentators even congratulating each other on another fine “Green” day as though the national football team won the World Cup. One expects a certain measure of human sympathy to be expressed in times of acute financial crises or panic market falls, as investors or speculators — call them whatever you want — often suffer enormously, with stories abounding about families left in ruin and even deaths occurring after spectacular crashes.

What makes it painful for such TV analysts to comprehend or to accept is that any corrections in market rallies are not treated as corrections, but as aberrations from the relentless upward march of regional stock market price indexes. Even hot air balloons have to come down to earth sometimes.

This type of market hype, as history so often has taught us, is a sheer fallacy, especially in developing markets that still have no depth in terms of both the number of listed shares, and a wider economic or sectoral diversification base.

Instead of analyzing flaws of the current composite market structure, highlighting the huge difference between long-term investment and the daily doses of speculative mania, the assorted TV analysts are bent on rolling out any scrap of good news, and thus unwittingly cheering speculators on. Even “bad” corporate or economic news is dressed up as semi-good, encouraged by statements such as “the Tadawul Index recovered losses and is on its way up,” when in brutal reality free falls and long overdue corrections had occurred. What is to be expected from financial reporting is that some transparency is shed concerning potential conflict of interest situations by those commenting on the market and particular company shares.

Bloomberg and CNBC make it a policy to insist that the financial analysts being interviewed disclose — either verbally or in a written blurb — whether he or she has any interests in the shares being analyzed. At the least viewers can then make up their mind on whether to buy, sell or hold the stock, knowing the revealed position of the expert.

As far as Gulf and Saudi financial analysts are concerned, one is never sure whether they are materially involved in the analyzed stock or not, as this is not revealed. It becomes doubly more difficult to assess if the TV financial journalists also have a conflict of interest or not. This should be the duty of senior TV management to ensure that employees, who are in a position to influence the investing public, sign disclaimers on whether they own stocks or not, and whether such stocks should be excluded from their discussions, or disclosed to viewers.

The Saudi market is still an emerging one in terms of investor sophistication. Its individual participants have a short term outlook and it is mostly driven by periods of irrational exuberance only to be followed by a galloping herd panic-selling when all fundamentals point to the opposite. Such speculators are not interested in long-term stock holding, but have become unwitting experts at “picking up” TV commentator’s body language signals, voice tremors and facial expressions. Who wants to analyze corporate financial trends after such a public show?

One is not insisting that our TV commentators transform themselves into expressionless robots, but there is a fine line between factual financial reporting and emotive financial reporting. Unfortunately, with a few honorable exceptions, there is far too little of the former for the time being in the Gulf.

First class professional TV journalists, who operate under even more stressful conditions than air-conditioned studios, do exist. War correspondents are an example of this breed. They report factually, often at great emotional anguish, but they report the story as it is, rather than being the story and influencing viewers.

Until a more professional and transparent TV financial reporting emerges in the Gulf, some of us will continue to predict how markets perform. This will not be based on economic fundamentals or technical analysis, but on the color of the clothes worn and the personal demeanor of our favorite TV analysts.

(Dr. Mohamed A. Ramady is visiting associate professor, finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.)

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