An investor behaviour expert has warned Facebook Inc (NASDAQ: FB)'s blocking of news to and from Australia will harm ASX share investors and the overall market.
On Thursday morning, the social media giant banned Australians from viewing or sharing news content and blocked Australian media companies from posting or sharing.
The move was in retaliation to the federal government's world-first News Media Bargaining Code, which would force digital platforms to pay news publishers for their content.
Regardless of which side might be morally right, the ban will have "huge implications" for the local share market, said RMIT University senior lecturer Angel Zhong.
"Finance research finds that news and media attention improve stock market efficiency and promote stock market liquidity."
Zhong, who is an academic specialising in investor behaviour, said many retail investors are in the habit of using Facebook to receive finance and company news.
So the company's news blackout could be "detrimental to stock market efficiency and liquidity".
"For example, you read business news on Facebook each day on the way to work, which informs your portfolio adjustment decision," Zhong said.
"However, with no news updates on Facebook, you no longer keep up-to-date with the latest developments in the market and economy, which means you may lose some opportunities to adjust your investment portfolio in time."
The Facebook share price was 2.91% down on Saturday morning Australian time.
Why the Australian Government is holding firm
IBISWorld senior industry analyst Liam Harrison said the government was trying to address a "power imbalance" between the journalism industry and tech platforms.
"[The media code] is one way the government is attempting to support revenue for newspaper publishers, which has declined at an annualised 6.2% over the past five years," he said.
"Facebook has argued [the code] ignores the value that journalism firms receive from user traffic directed through the Facebook News Feed. According to Facebook, journalism firms generated approximately 5.1 billion free referrals to Australian publishers, which were worth an estimated $407 million last year."
According to Zhong, 1-in-3 Australians last month used social media as their primary source for news and information.
The other major platform the media code targets is Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)'s Google search engine.
Google also threatened to block its product to Australians during negotiations but has since relented. Alphabet has now signed revenue-sharing deals with News Corporation (ASX: NWS) and Nine Entertainment Co Holdings Ltd (ASX: NEC).
But Zhong is still worried about further damage to ASX market dynamics if Google also becomes defensive.
"There are also concerns that Google may close some access to news, as Google is likely to be affected by the proposed legislation," she said.
"This will further exacerbate the impact of limited and/or delayed access to news on share market efficiency."
Facebook ANZ managing director William Easton wrote on a company blog Thursday that its situation differed from how Google uses news content.
"Google Search is inextricably intertwined with news, and publishers do not voluntarily provide their content," he said.
"On the other hand, publishers willingly choose to post news on Facebook, as it allows them to sell more subscriptions, grow their audiences and increase advertising revenue."
Therefore, according to Easton, the proposed media code "seeks to penalise Facebook for content it didn't take or ask for".
