Pakistan’s fake news problem is hurting gullible investors

Social media and rumours combine to send stock market participants in panic mode

KARACHI: If there is one place where the first-mover advantage really counts, it is the stock market.

Perhaps, this is why investors are keen to believe any piece of information or rumour that is floating around.

With Beijing’s keen interest in Pakistan, it is then also believable that a company from China would want to invest or acquire a stake in a company here.

Social media is aware of this. And this led to the unfortunate turn of events where a listed company - one of the largest cement makers in Pakistan no less - had to frantically publish a rebuttal, clarifying that no Chinese company had expressed interest in acquiring a stake in it.

Its response came after rumours that a Chinese company was looking to conduct due diligence so that it may acquire 40% stake in the company.

But it wasn’t just a rumour.

This time, social media and fake news went a step ahead.



A company notice, which looked as authentic as any letter printed on the company’s letterhead and bearing the company secretary’s signature, was being passed around in the digital sphere. It made its way through brokers, speculators and traders and plain-old miscreants.

Some believed the company notice was original, but managed to make its way onto the digital sphere before it was sent to the Pakistan Stock Exchange (PSX). Others said it was fake.

The company in question, DG Khan Cement, rebutted the entire notice.



The ‘fake story’

The fake narrative was something like this;

A Chinese giant, Anhui Conch Cement Company Limited, has expressed its interest in acquiring a 40% stake in Pakistan’s DG Khan Cement. The letter, dated December 13, appears to be signed by the company secretary, Khalid Mahmood Chohan, but his signature seems a bit off when compared to other notices sent to the PSX.

However, one difference that stands out is that this notice isn’t on the PSX website - where it is supposed to be first.

Instead, what shareholders and investors find is another notice sent by the company.



The rebuttal

DG Khan Cement reported this as fake and a fabricated piece of information that is in circulation on social media and particularly on WhatsApp. Its letter is also dated December 13, but is published first-thing in the morning on December 14 on the PSX website - probably because it was finalised after stock market hours.

The end-result; those who believed what eventually was fake news ended up buying the share of DG Khan Cement as they looked to make the first move.

The share price then plummeted after the company issued the rebuttal, hitting the 5% lower limit on December 14.

Simply put, the share price was manipulated. DG Khan Cement saw its trading volume surge to over a 7-week high and its price went as high as Rs126.85 before being pulled back to Rs124.3 at the end of trading on Wednesday.

Those who could get access to company officials found out that the news was fake. The price ended almost flat on Wednesday.

Those who wanted to make the quick buck were able to get out.

The company’s clarification naturally dragged down the share price to Rs118.09 the next day after which trading was halted since the share hit its 5% lower limit.

Sellers saw no buyers willing to take the risk on DG Khan Cement.

“My senior colleagues and I received dozens of calls from stock brokers and traders to check the information (on Wednesday),” a senior official at DG Khan Cement told The Express Tribune.

In this entire scenario, the company wasn’t the only loser.

Gullible equity investors as well as frontline and backline regulators - the PSX and the Securities and Exchange Commission of Pakistan (SECP) - did not come off as too brilliant, either. Authorities were dumbfounded as queries poured in on how the menace could be tackled.



The irony

Pakistan has recently framed laws to deal with such cases of rumour-mongering and misinformation on social media, but no one is ready to accept the responsibility of getting the complaint registered with the concerned authority - the Federal Investigation Agency (FIA).

DG Khan Cement officials say they have written letters to the regulators - PSX and SECP - asking them to initiate an inquiry.

“The SECP should approach the FIA to initiate an inquiry into the case,” he said. “If it (SECP) doesn’t act, the chances of which are high, then our management would consider approaching the FIA directly.”

An official at SECP said investigating rumours is not its job.

“It does not come under our ambit. There is not a single example in recent history that it has ever investigated rumours,” he said.

“DG Khan Cement should itself approach the FIA,” he said.

The PSX, when contacted, did not show any meaningful progress on the case.

An FIA official said the Prevention of Electronic Crime Act, 2016 has empowered them to deal with speculators with iron hands. However, they would do so after someone gets the complaint lodged with them.

“We have the resources in place to trace the culprits hurting the dignity of anyone on social media,” he said.

The culprits found involved will be prosecuted. “The law allows jailing culprits for a minimum of three months to a maximum of 20 years depending on the nature of the crime,” he said.

Why investors believe in rumours?

An analyst said rumours regarding the Chinese firm Anhui Conch Cement taking interest in acquiring a Pakistani cement manufacturer have been there for over a year now.

“Earlier, Anhui Conch Cement was named in similar cases of the then potential acquisition of Dewan Cement and one another cement manufacturer in Pakistan,” he said.

This is why this piece of disinformation was not checked and investors took positions.

Either way, some people were able to make millions, while others who took position without confirming the news lost millions.

Perturbed: DG Khan Cement wants SECP to probe fake stake sale news

DG Khan Cement, one of the largest cement-makers in Pakistan, revealed that it has not yet taken up the matter with the FIA.

However, it may approach the FIA if the SECP - the corporate sector regulator - fails to spring into action.

"The company expects the SECP to take action against those who circulated the fake information," a top DG Khan Cement official told The Express Tribune.

"We are concerned about the development which is why we immediately quashed the rumours by sending a notice to the PSX," he added.

DG Khan Cement is currently building a new plant in Hub, Balochistan's industrial city, about 30km northwest of Karachi, at a cost of about Rs6.5 billion.

The company is part of the Nishat Group, one of the largest private sector conglomerates in Pakistan.

The group has recently entered into the automobile industry by joining hands with South Korean carmaker Hyundai Motor Corporation, one of the largest automobile companies in the world.

Published in The Express Tribune, December 16^th, 2017.

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