IR Monitor – 2nd February 2022
Investor Relations News
With previously-remote workers returning to the office in droves, we start this week with The Spectator’s claim that the work from home bubble has burst. Following that, we’ll go over the key takeaways from Ken Lee’s webinar with the University of Glasgow. Third, we examine what CEOs have identified as the top threat in 2022: cyber security. Our next article discusses the impact of amateur trading on cash flows in the stock market in 2021. The penultimate article examines Matt Levin’s ‘non-deal roadshow,’ which questions why large institutions should have access to more information than small investors. Finally, we look at a study that discovered a link between a specific calendar anomaly and the US stock market.
This week’s news
The WFH bubble has burst
Could it be time for companies to meet investors IRL once again? The Spectator has suggested, in the first article of this week’s IR Monitor, that the WFH bubble has definitively burst. As the world moved to the new WFH “norm”, the COVID-19 pandemic prompted a dramatic increase in the share prices of a number of major tech companies, including Peleton, Zoom, and Netflix. It is precisely these WFH stars, all of which soared during the lockdowns of 2020 and 2021, that are now getting hammered. It appears that human social patterns are reverting to a more familiar past: “With the pandemic ending, it turns out that we quite like going out and about.”
Webinar with the Investor Relations Society on MiFID II
Ken Lee, a University of Glasgow academic, spoke with the Investor Relations Society about the Markets in Financial Instruments Directive (MiFID) II and its impact on investment. One key finding was that half of the FTSE 100 and half of the FTSE 250 companies did not believe MiFID II improved transparency, access to information and research about their businesses. Other key points were that MiFID II has weakened the role of corporate brokership services for companies (due to client list reduction) and that MiFID II has increased sell-side analysts’ disintermediation (exacerbating a long-term trend). On the upside, direct investor feedback via the IRO has significantly increased.
CEOs name cyber-risk as top threat in 2022, according to PWC survey
According to new PWC research, CEOs see cyber-attacks as the most serious threat to their companies in the coming year. Cyber-risk is the top concern (selected by 49 percent) in the firm’s annual CEO survey, followed by health risks (48 percent) and macroeconomic volatility (43 percent), which includes topics such as inflation and GDP changes. Cyber-attacks have increased in the last two years, aided by increased technology adoption across industries, increased work-from-home opportunities, and the ease of spreading misinformation during a pandemic. On the other hand this research, flagged by IR Magazine, also suggests that cyber is not yet seen as an IR issue: only 19 percent of CEOs consider that cyber-risk might negatively affect their access to capital.
Retail traders keep the faith during Wall Street’s turbulent January
According to the Financial Times, large inflows of cash from amateur traders were a major driver of last year’s surge in stock prices. This much is well-documented but what is more surprising is that retail traders have kept the faith subsequently. Despite market volatility, amateur investors have purchased US shares every day this year, pumping cash into US equities even as share prices have fallen from the historic highs set at the start of January. Investor Relations Officer, perhaps hoping that this particular unruly audience might have changed channel, may be disappointed.
Non-deal roadshows
Matt Levine has offered the basic model of investment bank research in his Money Stuff column. His claim is that it all starts with ‘Non-deal roadshows’ whereby large institutions meet with managers of the companies whose stock they own in order to gather useful information about the companies and make informed decisions. Levine points out that his seemingly simple research process is full of strange elements starting with the very first point on the gathering of “useful” information; this begs the question of why a large institution should be more privy to useful information than a small investor which could, in turn, come close to threatening US Regulation FD (which prohibits companies from providing ‘material nonpublic information’ to investors in private meetings without simultaneously disclosing it to all shareholders). You can read more about his thoughts on the conflicts of interest here.
And finally … The Groundhog Day stock market anomaly
Today, Wednesday 2nd February, is Groundhog Day. It is also a useful reminder for IROs everywhere that investors remain a fickle, superstitious bunch and that appeals to reason can only go so far. A study published in Science Today has discovered a distinct calendar anomaly in the US stock market linked to the Groundhog Day prediction tradition from 1928 to 2021. According to the paper, there are significant positive abnormal returns surrounding the ‘prediction’ of an early spring, while buy-and-hold returns surrounding the ‘prediction’ of a long winter are 3 percent lower. These findings suggest that US investors have a significant and persistent irrational optimism based on Groundhog early spring forecasts.
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