The global coronavirus pandemic is testing all aspects of everyday life. Jeff Shen discusses how his team are using human and machine-mined insights to assess the landscape and look ahead.
These are unusual times, to say the least. Few in the financial industry have seen a global pandemic and widespread economic shutdown, and we must approach our outlooks with a dose of humility.
Our Systematic Active Equity team is bringing together human insight and robust quantitative tools and techniques in seeking to illuminate some of the dark spots in the outlook.
Alternative data has been an area of intense focus for us over the past decade. And today, satellite images, foot traffic and transaction data are giving us a better read on the economy amid widespread global closures and re-openings. At the same time, the natural language processing of news flow, retail blogs and broker reports afford us a deeper understanding of investor sentiment and market reactions to policy responses. We combine these modern techniques with our investors’ deep understanding of the market from both a macroeconomic and finance perspective to better understand investment risk and opportunity.
To that end, we have identified three areas for investor consideration as the stock market has moved from the earlier phase of free-fall to the current phase of bottom-seeking and increased dispersion:
1. What can we learn from China?
Slowly but surely, China’s economy is on the path to recovery. The alternative data we track (satellite images, traffic congestion and transaction data) offers some hints as to how the recovery may play out in other parts of the world.
First, China’s recovery seems to be staggered and gradual. We see many differences across cities and provinces with a slower recovery in the more connected cosmopolitan areas and faster in the periphery. We think the recovery around the globe will also be uneven, with large country or geographic differences. This could imply country as a unit of analysis may be more important for investors going forward.
Second, we note China’s supply recovery has been faster (factories have re-opened) while the demand recovery (consumer activity) has been slow. It’s easier to ask people to go back to work but much harder for people to feel confident enough to book their next cruise vacation.