Trump's Twitter and Facebook bans will resonate through emerging markets

  • Outgoing US President Trump has been banned by Twitter and Facebook after the Capitol Building attack
  • This highlights a long-running ethical challenge for social media platforms: enable free speech but police its abuse
  • More questions than answers at this stage for investors in social media and for political risk in emerging markets
Trump's Twitter and Facebook bans will resonate through emerging markets

The smartphone of outgoing US President Trump has been reduced to more of a dumbphone following his bans by the Twitter and Facebook. We explore the implications for investors in social media platforms and political risk in emerging market politics below.

The bans handed out by Twitter and Facebook to Trump after the riots at the Capitol Building in Washington have removed the loud speaker for the outgoing President's musings (some of which were seemingly generated in the middle of the night, some which were shocking and deeply offensive to parts of the domestic and international audience, and some which moved financial markets).

Trump had followers on Twitter and Facebook equivalent to 27% and 10%, respectively, of the US population (although a material number were likely based outside the US). In turn, these equated to about 4x the size of President-elect Biden's footprint on these platforms (although, no doubt to Trumps's enduring annoyance, less than that of former President Obama).

The ethical and commercial questions facing the social media platforms are multiple, have no clear cut answers but surely impact both the valuation of those platforms and the outlook for the conduct of politics in any country with significant social media penetration.

  • Ethics and regulation – When does the need to guarantee freedom of speech give way to the need to police the abuse of that freedom and is it the regulator's job to determine this boundary or the company's (with consequent legal liability for the company)?

  • Localisation – Will different countries and regions apply different rules (forcing a level of localised compliance perhaps not envisaged in valuations premised on the ability to easily scale up these social media platforms)?

  • Polarisation – Is the polarisation that social media platforms tend to encourage in their users less likely the quicker that more extreme posts are blocked (and, conversely, is the space for political pluralism narrowed by too much censorship)?

  • Authoritarianism – In markets with highly imperfect democracies and protection of human rights (or, indeed, outright authoritarian states) will the Trump precedent be used to ban political rivals at the whim of incumbent local governments?

Today's issues around censorship and subjective bias are no different from those faced by traditional print and broadcast media. The differences now are two-fold: (1) the accelerated polarisation of the user base via the technology underpinning social media; and (2) for investors specifically, the long shadow over most other sectors of the listed equity universe cast by mega Tech in recent years.

Below we chart the social media footprint of political leaders in the emerging markets.

  • In EM, the social media following of political leaders (relative to local population size) is highest in the GCC and Turkey. Generally, social media penetration is lower than in, for example, the US; this implies that traditional party organisation or the "hidden hand", depending on the country in question, of the clerics, military, bureaucracy, unions, or tribal elders will continue to exert the major influence on politics (ie it may still take decades for new political challengers to win over key vested interests and have a shot at winning power, as opposed to merely creating awareness and organising protests – contrast the examples of a three-decade long journey for Imran Khan and the PTI in Pakistan with the relatively recent, arguably still immature albeit no less heroic, challenge mounted by Bobi Wine in Uganda).

  • Political leader's with the largest social media footprint advantage in those emerging markets that hold elections (eg excluding China, Vietnam, the GCC) are in India, Pakistan, Russia and Turkey. At what point will ESG-conscious investors screen global social media companies on the basis of their exposure to countries with restricted freedom of speech (and on what basis will those ESG investors determine the minimum threshold for freedom of speech)? Is a large lead in social media footprint the result of better organisation and a more popular political manifesto, or the result of suppression of challengers?

Social media following of political leaders in EM, FM, and US

Social media mired in free speech, political pluralism ethics

Related reading

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Technology has dominated global equities, consider its risks (Nov 2020)

Google anti-trust implications for mega Tech and EMs in its shadow (Oct 2020)

'Splinternet' problems for EM equity investors (Aug 2020)

US weaponises all Tech regulation in China friction, EM Tech in the cross hairs (Aug 2020)

Technology stocks cheaper in Taiwan-Korea vs US or China, let alone small EM-FM (Sep 2020)

Chasing technology's tail: EM equity strategy overview (Jun 2020)

Disruptive Technology and low FX controls risk in small EM via overseas listings (Apr 2020)


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