Chinese stocks have traditionally shown little correlation with economic growth. When China boasted the world’s fastest-growing economy between 2010 and 2014, its stockmarket was consistently among the world’s worst performers. And now that the Chinese economy is growing at the slowest pace in six years, the Shanghai and Shenzhen markets have been on an unstoppable rally.
This may defy economists, but not the believers in the buzz concept of ‘big data’. China’s biggest internet firms are now taking advantage of the fervour too. How? They’re scouring their enormous databases for insights that help fund managers pick stocks.
Internet firms like Sina, Baidu and Alibaba’s Ant Financial have each teamed up with local investment companies to launch equity funds that operate on strategies based on analysis of their own online data.
“This year is particularly good timing because China’s stock market has been doing so well. In the past internet firms have expanded into online banking but their presence in the securities industry is still non-existent. So this is likely going to be a hot topic in the near future,” Xi Junyang, deputy director of Shanghai University of Finance and Economics told the Economic Observer.
Using big data for stock analysis has already been tried in the US. “One investment company in the US uses satellites to take images of the parking lots at different shopping malls to count the number of vehicles that are parked there throughout the day. It uses that data to analyse shopping habits and frequency. But the cost of doing that in China is too high. Moreover, with the amount of transactions that are now conducted online, our e-commerce firms can play an equally critical role to such satellites,” an insider told Southern Weekend.
Take Ant Financial. The company is working closely with Bosera Fund Management’s CSI Big Data 100 Fund, offering fund managers a heads-up from different sectors by analysing payments made across Alibaba’s e-commerce platforms like Taobao and TMall.
Here’s an example of how it works: if data on Alibaba detects a big upswing for sportswear products across its platforms, it will signal the fund managers to purchase sportswear stocks to take advantage of the trend. The collaboration has already born fruit. Bosera’s CSI Big Data 100 Fund posted a 41% return in the first quarter, outperforming the 15% gain of the benchmark Shanghai Composite Index in that period.
Similarly, Sina has partnered with China Southern Asset Management in the launch of several big data-based funds. The partnership’s information pool uses not only financial data and news on Sina’s web portal but also millions of blog posts that are hosted on its site. Its weibo service, China’s most popular Twitter-equivalent, also helps collect data that best reflects current market sentiment. Investors are so keen that when the China Southern Big Data 100 Fund was launched in April, it was swiftly over-subscribed and only a quarter of applicants received a stake.
But it was search giant Baidu that came up with the country’s first big data-based fund. In 2014, the search engine partnered with GF Securities and China Securities Index (CSI) to launch the CSI Baidu Baifa Strategy 100 Index, using data from its own search engine to help investors decide which stocks to sell and buy. The fund closed within 24 hours of bookrunning, raising over Rmb2.4 billion ($386 million) in a day.
Proponents of big data say it offers the most up-to-date information, thereby giving investors a big advantage. “Investment opportunities are so fleeting, so timing is everything. Investors can harvest the big data to predict the future in real-time. That will create major advantages of information asymmetry,” Xiao Feng, chairman of DataYes, an internet finance company, told Southern Weekend.
Some others caution that stock-picking is not so straightforward. “Big data processing requires a very complex system like regression analysis, factor analysis and other important variables to filter out all the information. Currently in China, there is not a strategy that is based only on big data. More often than not, the data is used as a reference,” says Chen Tong from E-Fund Management.
Zhang Jun from Tencent Finance concurs: “If you rely solely on big data, the performance of the fund is going to be very bad.”
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