Social media platforms, such as WeChat, can quickly spread misinformation about Chinese companies around the market, leading to share price declines and reputational damage. How should IR teams respond? Tim Human investigates
An email arrives from one of your institutional investors. Attached is a screengrab of a social media post that makes harmful claims against your company. The investor wants to check with you whether there is any truth to the allegations.
This has happened on multiple occasions to Winnie Lei, senior director of investor relations at Suncity Group Holdings, the Hong Kong-listed integrated resort developer. ‘We have media and social monitoring in place to find out when something is trending, although we can’t catch 100 percent,’ she says. ‘Sometimes it’s investors that first see a rumor spreading in forums.’
Lei’s experience will sound familiar to other Chinese companies. Negative stories regularly circulate on social media platforms about businesses listed in Hong Kong and mainland China. The source could be anything: a short-seller’s report, foreign news article or anonymous blogger. Social media platforms like WeChat, China’s largest by user base, then provide fertile ground for rapid dissemination.
Companies on the receiving end of such a social media storm are at risk of short-term damage to their share price – and a long-term hit to their reputation. Given the ever-present threat, however, they are getting better at mounting rapid campaigns to take back control of the story.
Winnie Lei, Suncity Group Holdings
In the spotlight Lei spends a lot of time tracking rumors about her business. Suncity’s operations in the gambling industry tend to attract some negative publicity, she says. In addition, the company's chairman is a celebrity who frequently appears in news stories about his business and personal life.
‘We monitor the views and comments on a daily basis, but we just can’t respond to every single one,’ says Lei. ‘So we only respond to the ones that have most impacted the company.’
One incident where Suncity needed to respond occurred last July, she says. Rumors began circulating on social media that the company was unable to sustain itself financially.
The rumors were ‘spreading like wildfire on the internet, especially Chinese social media app WeChat,’ recalls Lei. In response, the marketing team joined forces with the investor relations team and filmed a video of the chairman, in which he clarified the online claims as unsubstantiated and offered proof that the company still had plenty of liquidity. ‘He even showed a screenshot of bank statements in the video,’ Lei says.
The company released the video and clarifications across its various communications channels, including its WeChat account. It wanted the content to be easily shareable on social media because that’s where the rumors had started, explains Lei.
The role of short-sellers While negative news can come from a variety of sources, one of the most serious situations is when claims are made by a short-seller.
Some of these firms have a significant following among the investment community and their allegations can cause share prices to tumble within minutes of the publication of a new report. Over the last decade, several short-sellers have targeted Chinese companies listed in the US.
But issuers listed in Hong Kong are also targets. The number of public activist campaigns by short-sellers in the city was five in both 2019 and 2020, according to data from Activist Insight.
Social media plays a useful role in disseminating short-sellers’ research. Most make use of Twitter to share their concerns about companies, upload video clips and distribute news reports. Each firm may also use a range of other social media platforms, from YouTube to Seeking Alpha and LinkedIn. Some publish information in multiple languages too. For example, Bucephalus Research, which describes itself as exposing ‘creative accounting at listed companies’, has a section of its website in traditional Chinese.
Companies that fail to respond quickly to a short-seller could see significant damage to their share price, explains Benny Liu, managing director and head of China at Citigate Dewe Rogerson, an advisory firm. In such situations, he says firms should make use of traditional communications channels as well as social media to protect their reputation, such as issuing a press release, arranging a call with investors and analysts, and engaging with media organizations.
Speed is key to the corporate response, adds Liu. ‘With social media, [news] spreads to people much faster than before, so IR has to do the same. You have to be really quick and transparent in terms of disclosing information and addressing the issues,’ he points out.
Lenovo’s response Lenovo offers a useful case study in how to react to a short-selling report. The company won the award for best crisis management at the IR Magazine Awards – Greater China 2020, based on its response to research by Bucephalus.
In late February 2020, the research firm released a tweet that said it had just finished its latest report on Lenovo and the situation was ‘starting to look like fraud’. The tweet was retweeted by fellow short-seller Muddy Waters Research. Two days later, Bucephalus posted a six-minute video to YouTube digging into its claims.
One of the first actions Lenovo took was to call a meeting of its accounting team to ‘get the facts,’ Bryan Hsu, director of IR at Lenovo, told IR Magazine last year.
On the same day the video appeared, Lenovo released a statement categorically denying 'the allegations contained in the video regarding its financial statements’.
In addition, the PC maker quickly organized two investor calls to challenge the allegations. The calls were attended by CFO Wong Wai Ming and held in different time zones to reach a wide audience.
According to Hsu, key aspects of the response were synchronization between internal teams, IR accessibility and leveraging technology. ‘You have to react to those questions as soon as you can with a very clear answer and guidance,’ he said, adding that the company went to extra lengths to update its website so investors ‘wouldn’t need to search’ for answers, and even going so far as to adjust its website FAQ section.
Lenovo’s response appeared to reassure the market. The stock price, which fell more than 5 percent on the release of the video and short-report, retraced its losses over the following week. Brokers also put out notes explaining management’s take on the allegations, helping to spread the company’s message further.
The Lenovo/Bucephalus clash is just one example of dozens of short-selling attacks against Chinese companies every year, many of which make use of social media to spread their message. Is the constant pressure forcing companies to up their crisis communications game? Liu thinks so. ‘A lot of listed firms respond to these allegations very well,’ he notes. ‘If the information is false, they publish a statement, they communicate with investors and hold media briefings. In general, they have become more aware of short-selling incidents and they react promptly.’
Social watch When thinking about which social media platforms to monitor, the discussion has to start with WeChat. Initially launched as a messaging service, it has become a ‘do anything’ tool where users can consume news, buy products and play games, among other services. The app has more than 1.2 bn active monthly users.
People sometimes have misconceptions about WeChat being the source of misinformation about companies, says Liu. ‘We have to bear in mind that it is an instant messaging tool as well, so news from other sources will be shared on WeChat,’ he points out.
WeChat also contains investment groups – some public, some private – where retail investors gather to discuss stocks, he adds. Like in other markets, China has witnessed a trend for retail investors to come together to ‘buy certain stocks and boost the share price,’ he says.
Other popular Chinese platforms include Sina Weibo, which is similar to Facebook, and video-sharing app Douyin, the brand name of TikTok in China. Both report more than 500 mn monthly users. While banned in mainland China, US-owned social media networks like Twitter and YouTube are available in Hong Kong and are key sources of news for international investors looking at the Chinese market.
Many companies work with outside partners to monitor news. But even with their help, you may not spot every rumor in the early stages, says Lei, which is where the tip-offs from investors come in handy.
‘I don’t think there’s a single provider out there that could catch everything,’ she says. ‘There are rumors in English, Chinese [languages] and other languages. There are rumors spreading on channels such as WeChat. There are so many online forums.’
IR teams should be particularly vigilant if they work in the consumer or technology sectors, given their high profile with the public, says Liu. The spread of information about those names will be much wider, he notes, adding: ‘Across different sectors, however, all companies need to be aware of the impact of misinformation.’
Once you have a good understanding of the social landscape, the next step is to create a system for identifying misinformation and categorizing it into different levels of importance.
When rumors are emanating from an individual or platform that lacks clout, you may not need to do anything, explains Liu. ‘But if there are larger issues – for example, accusations of fraud from short-sellers – social media is one of the channels you need to consider,’ he says.
Liu sees Hong Kong and mainland Chinese companies at different levels of development in their IR social strategy. ‘A lot of the A-share companies – in Shanghai or Shenzhen – have already incorporated social media into their IR work,’ he says.
‘Hong Kong-listed companies are a bit behind. The demographic is different in terms of the structure of shareholders, because mainland China is more retail-focused while the Hong Kong exchange is more institutional.’
Liu says Hong Kong issuers that aren't already using social media should try to catch up, especially if they want to engage with the next generation of investors. ‘The earlier you engage in the channel that is popular among them, the earlier you can gain the trust of those investors,’ he says.
Benny Liu, Citigate Dewe Rogerson
