Advisory intelligence: A guide to empowering IROs with macro armory
The world is a complex place: with lots of cross-currents working in different directions, uncertainty is always a given as business is an ongoing concern. Given this, how does the ever-changing macroeconomic environment, with its constant ebb and flow, impact on IR programs – and how should IROs be responding?
‘An IRO needs to understand what moves the markets and how to be in better sync with investors,’ says Massud Ghaussy, senior analyst at Nasdaq IR Intelligence. ‘Being well informed about macroeconomic issues, policies coming out of Washington and secular tailwinds and headwinds empowers the IRO.’
But how does an understanding of macroeconomic issues empower IROs? Ghaussy provides a simple but insightful checklist:
- It helps with deeper and more knowledgeable conversations with investors and the management team
- It helps the IRO anticipate questions or concerns that may emerge internally or externally
- It offers the opportunity to proactively provide messages to the market and investors
- It helps IROs understand the various levels that determine their stock price and their peers
- It helps in investor targeting and positioning.
‘Firms do not operate in a vacuum and asset prices are largely dictated by policy, sentiment and momentum,’ notes Ghaussy. As such, ‘understanding broad-based movements helps the IRO to be ahead of the curve to proactively message investors and the markets, and enables IROs to anticipate investor questions and concerns and think like investors.’
Highlighting a key principle for IRO macroeconomic knowledge, Ghaussy observes: ‘Macroeconomic understanding helps IROs target specific investors and proactively position the firm to ride waves or minimize selling.’
In this way, it is important for IROs to understand larger market movements. ‘Because beta movements come from macroeconomic underpinnings: that’s how asset prices are ultimately dictated,’ Ghaussy explains. ‘Correlations matter in markets.’ Indeed, correlation can be used in measuring and comparing individual stocks or to measure how asset classes or broad markets move in relation to each other.
So knowing correlations and how asset prices move in conjunction with peers is very important – central, in fact. ’Sometimes markets behave in such ways that fundamentals become irrelevant, correlations increase, and vice versa,’ notes Ghaussy. This is a key consideration IROs should be thinking about regarding their own stock.
There are, of course, many factors that impact on a firm’s bottom line and valuation, from idiosyncratic sector-specific issues and lawsuits to big picture macroeconomic trends. ‘Understanding various broad-based movements helps IROs to strip out various policies and how they manifest themselves on the bottom line of the company,’ says Ghaussy.
A good example here is in the tech sector: if earnings are strong, the economy is doing well and tax cuts can usher in capital formation and growth, yet tech firms are being sold off, what’s behind this? ‘Tech headwinds can be related to monetary policy tightening, regulatory headwinds (such as privacy laws), a digital tax and slowing economic growth,’ says Ghaussy. This is a comprehensive list and a key indicator of how important it is for the IRO to know and understand all of these influential factors and the impact they may have on the stock.
And when it comes to investor targeting – a vital part of all IR programs – Ghaussy says: ‘How IROs need to approach their investor targeting means a tilt toward value and earnings growth in this environment. The concept of relativity plays an important role in investing, especially for the alpha hunters – or the stock pickers. And these are the types of firms that IROs spend the most time with.’
Summing up the importance of macroeconomic understanding and the approach of IROs, Ghaussy states: ‘The macro picture is the final piece of the equation that gives IROs a 360-degree view. Understanding the macroeconomic landscape arms an IRO to have knowledgeable conversations with various stakeholders, proactively message investors and management, and target investors.’