You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

See my pictures in Instagram, @teguhidx.

'News Framing' in Stock Investing

In the field of journalism, ‘news framing’ is a method used by the media in conveying a news, information, or facts of a particular event, in order to influence the perception or impression from the public about the news or the people in it. In other words, news framing is a method of public opinion making, where the exact same piece of news, events, or someone’s statements can create several different perceptions from its readers, depending on how the media/journalist in delivering the words.

Here’s a simple example of news framing. One day, a reporter was interviewing a state minister:

Reporter (R): Sir, do you prefer fried chicken or lamb curry?
Minister (M): Fried chicken.
R: Smeared with wheat flour or not?
M: With flour.
R: Like in Kentucky Fried Chicken (KFC) and McDonald’s?
M: Yes, more or less.

The next day in the paper came the headline: ‘Minister M preferred American fried chicken and did not like the traditional Indonesian lamb curry.’

In an online media, news appeared with the title: ‘Alas! Minister M live a western lifestyle.’

In other online media, ‘Astaghfirullah! Minister M hates lamb meat, a favorite food of Prophet Muhammad.’

Someone wrote on his Facebook status, ‘American pig! Minister M is more supportive of KFC and McDonald’s than local food enterprises.’

News Framing in the Stock Market

After reading the example above, you might concluded that news framing usually occurs in political news, usually related to certain statements from public official which are then twisted, so it seems like the official said something, while in fact he did not, or that’s not what he meant. Actually, if you take a look around, any news related to politics nowadays can never be separated from this framing technique, and consequently the opinion that develops in society related to certain political issues always depends on how the media in delivering a news.

But did you know that besides attacking particular public figures or officials, the news framing could also attack particular stocks in the stock market?

Let's look at the latest examples. Just two days ago, Coordinating Minister Luhut Pandjaitan and several other ministers told reporters that, with the goal that the light rail transit (LRT) construction project could be completed on time, the funding mechanism of the project would be made more flexible. Previously, the project would fully using the funds from the state budget, but now the Government opens other funding options such as public service obligation, guarantee, cooperation with private parties or state-owned enterprises, and so on.

But somehow, the story that emerges is ‘The construction of LRT, which undertaken by Adhi Karya (ADHI), could be terminated because it is no longer financed by the state budget.’

While if we look at the exact statement from Mr. Luhut, for example as you can read here:


He did not say that the LRT project is no longer financed by the state budget. He even didn’t ever stated that the state budget is not able to bear the cost of the project! (its was the journalist who wrote the sentence). What Mr. Luhut emphasizes is that since the Government wishes that the LRT project can be completed on time, we should not rely solely on the state budget, but we can consider many other funding options including appointing ADHI as an investor (not just as a contractor, but the owner of the LRT), of course, provided the company is able to provide funds (but it’s okay if ADHI isn’t able, so the LRT would still belong to the Government). Notice that Mr. Luhut only said that ‘ADHI can also be the owner of the project, not only the constructor’, rather than saying ‘We have appointed ADHI as the project owner, so from now the company is fully responsible to the issue of LRT financing.’ Notice also that he did not say words like ‘The constuction should be stopped', 'we do not have enough money’, or something like that. Instead he stressed that ‘We wish that the LRT project could be completed on time in the first quarter 2019, and it seems likely.’

Nevertheless, the news that spreaded is that the LRT project undertaken by ADHI was in a danger of termination. And as you can guess: In just two days, the share price of ADHI dropped to below psychological level of Rp2,000 per share, and of course, everybody panicked.

But this story of ADHI is not the first. A few months ago, when Jasa Marga (JSMR) shares plummeted to below 4,000, there were some news which said that because the company will operate many new toll roads in the near future, JSMR may lose money as the new toll roads would cost the company heavily for its operations (these words are absolutely absurd, nevertheless people believe it). In December 2016, there was also news that because of the policy of tax amnesty, the banks in the country will be flooded by repatriation funds from abroad, that if later the bank can not distribute it immediately in form of credit, they will suffer losses (the shares of big banks like BBRI et al dropped). There has also been news that ‘In order to discourage people in smoking, the government will raise the excise tax of cigarettes, so the price of cigarettes may raise from Rp20,000 (US$ 1.3) to Rp100,000 (US$ 8) per pack’, whereas it was only a discourse from an NGO! But the news is strong enough to drag down the stock of the largest cigarette manufacturer, Gudang Garam (GGRM). And so on.

Jasa Marga (JSMR) is one of the best companies in the IDX in terms of fundamentals, but it doesn't mean that the stock cannot fall sometimes

In addition to making particular stocks to fall, news framing could also making particular stocks to rise. When Bank Pundi was acquired by the Provincial Government of Banten, and  changed its name to Bank Banten (BEKS), there are news everywhere saying that BEKS fundamentals would become as good as Bank Jabar (BJBR) bla bla bla, thus the stock skyrocketed (but later dropped back). In other time, when Donald Trump won the US Presidential Election, suddenly popped the news which reminds the public that months before, Trump had worked together with Hary Tanoesoedibjo to build a resort in Bali, and later that day the stock of MNC Investama (BHIT), which was Hary Tanoe’s holding company, jumped to the sky.

Nevertheless, either the news causes the stocks to rise or fall, but as you can see: Shortly after the news is forgotten, usually no later than several weeks, the stock price will return to its previous position. Even in the case of news framing with prolonged effects, for example when the issue about limitation of banking’ net interest margin became hot news in February 2016, which causes the banking stocks to fall, and the price did not recovered for more than six months later, but look at the share price of BBRI, BBNI, BMRI, and BBCA today, surprised??

In conclusion, when we find a fundamentally good stock that is being attacked by a certain negative news, then it probably an opportunity. But if it was our stocks in our portfolio that being attacked, then whether this situation could lead to profits or losses, it depends entirely from the way we deal with the attack: If you act like ‘political commentator’ on Facebook who always read the news headline without even reading the content of the news itself (while the news could be hoaxes) then became triggered because of it, then of course: You would be panic as soon as your stock is under attack, so you sell it, only to regret it a few moments later because the stock was rising again.

But if we only buy good quality stocks in the first place, and taking the time to read the news thoroughly to understand the essence of the story, and later you find out that there is nothing to worry about, then of course you don’t have to suffer any losses. Actually no matter how good the fundamentals of the stock that you own, still it might dropped anytime if it was ‘under attack’ by these news framings, and that’s one of many inevitable risks in stock investing. Anyway, now you know how to deal with it.

Original article was written and published (in Indonesian Language) in February 9, 2017. Any inquiries, contact the author (Teguh Hidayat) by email teguh.idx@gmail.com

No comments: