(MENAFN- Khaleej Times) Sentiment driven by media has an important effect on asset prices and raises questions over how behavioural factors interrelate in economic environments. There has been a plethora of research suggesting that expectation and fundamentals have a complex relationship where a negative shock can be systematically over-estimated turning bulls into bears.
In the United States, according to a white paper published by the Ohio State University, during the last boom-bust cycle, there was indeed an intertwined relationship between both the amount and type of media coverage and public perceptions regarding the housing market. It also states that the public perception of the housing market is influenced more by bad news when compared to the influence of good news. A potential reason for this could be attributed to the excess attention when economic conditions are poor.
There is typically a lag effect between "animal spirits" as reflected in the media and the "smart money" around inflection points that is the greatest indicator of the ineffectiveness of the media's impact on the predictive role of asset prices. In the United States, there was still a litany of research and articles published in 2011, well after the market had recovered and the direction of prices were on its way upwards.
We have seen this trend transpire in Dubai over the last cycle as well. An analysis from July to October 2014 reveals that majority of the themes of articles were buyout with a general notion that prices would increase further, thereby underlining the notion that media reports and the zeitgeist is often guilty of the "herd mentality" that they themselves warn investors against.
During the same time, prices were plateauing and only once prices turned negative did the media change their stance from optimism to pessimism. This reiterates that point that investors need to analyse the fundamentals, compared to following the media to define their position, and that the "zeitgeist" as reflected by media reports has been lagging market activity, especially during inflection points.
Once again in 2017, we are witnessing the same trend as investor sentiment continues to dampen by news headlines and research. However, a closer dissection of the data and fundamentals suggest that the price cycle is currently in an inflection point, giving investors an opportunity to enter the market and capitalise on future gains.
Transactional activity has increased on a year-on-year basis, both on a level of volume and value. In addition, price action across communities is scattered, where in the last year there have been green shoots in certain mid-income areas such as Jumeirah Village Circle and International Media Production Zone, but in other locations such as Downtown, prices continue to edge lower.
Decisions driven by 'animal spirits' and the media usually cause the investor to get trapped in herd mentality, consequently blinding them from seeing the inflection point in the market. For investors to better gauge market conditions and inflection points, a deeper analysis is needed to assess the real value of the asset. Whether investors decide to enter the market or sit on the sidelines waiting, they must be cognizant of the fact that a recovery is typically slow and steady and shouldn't expect double digit returns soon.
The writer is head of IR and research at Global Capital Partners. Views expressed are his own and do not reflect the newspaper's policy.
MENAFN1212201700490000ID1096225697
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.