The power of alternative data: Bridging the gap between the East and the West
By Allen Yan, CEO, GTCOM-US
As a result of the COVID-19 pandemic, financial markets worldwide have entered a period of extreme volatility, making it much harder for investors to identify sound investment opportunities using just their experience and traditional data analysis. An emerging solution to this problem is alternative data – large volumes of data collected from non-traditional sources such as news, social media, payment data or foot traffic volumes in particular stores. As a tool, alternative data has quickly occupied a crucial role within financial markets globally and shows no signs of slowing down. We only expect to see its popularity rise in years to come.
As western investors look for new ways to generate alpha, they’re increasingly looking to the East, in particular to China. Over the last two decades, the opportunities for collaboration between Chinese and Western businesses have diversified and increased hugely, particularly within financial markets where alternative data is now playing a key role in bridging the gap between the East and the West.
Having worked at the forefront of the alternative data movement for many years in China and having seen the tremendous positive impact it has had on investment landscape; I believe there has never been a more important time to bring these powerful insights to the rest of the world than right now when markets globally are experiencing a tumultuous time.
These insights are especially important today because China is an extremely attractive investment market, and I do not expect this to change anytime soon. In fact, all signs point to the contrary. In recent years, China has taken various strides in opening up its financial market to global investors. These changes are making it easier for foreign investors to buy Chinese stocks and bonds and are welcoming full foreign ownership of insurance and mutual fund corporations. What’s more, China has recovered well from the impact of the COVID-19 pandemic, creating a tremendous amount of new investment opportunity. Western investors looking for new ways to enhance trading strategies are increasingly keen to find a gateway into China – and that gateway lies in alternative data.
We already know that alternative data is transforming the global investment landscape, and if used correctly, has the power to make a massive impact on trading strategies. With the right insights, investors can respond more quickly to market conditions and remain one step ahead of their competitors.
But alternative data itself is as complex as it is infinite. Its volume is much larger, and its updating frequency is much higher than that of traditional data – making it impossible to process using traditional technology methods. What’s more, most of alternative data is in an unstructured or semi-structured format – making it impossible to analyze and normalize manually. Over the past few years, through the development of artificial intelligence (AI) — including machine learning (ML), natural language processing (NLP) — the role of alternative data has become more increasingly significant as the technology to efficiently extract signals from it has developed.
In the wake of COVID-19, alternative data has become instrumental in investment decision making. Because the day-to-day performance of many international public companies in China’s market have a direct correlation with their stock price, analyzing and projecting those stock prices at a rapid speed is key for global investors looking to generate alpha. Technological models using alternative data can now predict how companies are recovering from the pandemic in a variety of ways. One such use case is the way that, by implementing geo-location data, we are able to track the daily visitor volume to Disneyland in Shanghai. Since China plays an important role in Disney’s global landscape, the visitor volume to Disney Shanghai is highly correlated with the quarterly stock performance of Walt Disney Company on the New York Stock Exchange. The performance of Walt Disney Company clearly benefited from the early reopening of Disney Shanghai back in May 2020, which helped its stock price rebound by almost 20%. With access to data on factors like daily visitor volumes, investors can anticipate the impact on stock prices more accurately and make more informed decisions, fast.
A current hot topic when it comes to investment in China is new infrastructure. The investment associated with new infrastructure projects is expected to total between $1.4 and $2.5 trillion over the next five-year period. By using different types of alternative data including recruitment data, sentiment data, IP data, geo-location data, and supply chain data, investors can create both quantitative strategies and fundamental analysis in order to evaluate and optimize their current portfolios when it comes to China A-Shares.
In the past two years, moves from players such as Nasdaq and Bloomberg into the alternative data space have really put alternative data on the map and at the forefront of investors’ minds. These firms – who have both launched alternative data sets, Nasdaq via its acquisition of QuanDl, and Bloomberg with its launch of EAP – illustrate the increased role this type of data has been playing within financial markets as a whole. As more giant corporations engage with alternative data, the more we can expect to see it grow in prominence.
The power, for investors, lies in analyzing information that not everyone has access to. Using a huge range of alternative data, new models exist that can reflect the macroeconomy in China much earlier than traditional indicators such as GDP – creating the ability to act before anyone else. Firms who have begun to expand the application of alternative data early on will be the ones who capitalize on the largest scale. The investment landscape, especially when investing from the West into regions in the East, can be infinitely complicated, but alternative data enables us to gather untapped insights making possibilities infinite. Innovative technology and these new forms of data will continue to empower the Western financial industry to make the most out of investment opportunities in the East at this crucial time in the global recovery. Meanwhile, China’s immense capital and financial markets will continue to draw in and connect global investors – particularly those who are empowered to make better and smarter decisions.
About the Author
Allen Yan is the CEO of GTCOM Technology Corporation (GTCOM-US). Mr. Yan has accumulated more than ten years of experience in international marketing & sales of information and data, and has successively worked for Datang Telecom Technology Co., Ltd. (listed) and Feitian Technologies Co., Ltd. (listed). He currently serves as the CEO of GTCOM Technology Corporation and manages the company’s global strategic layout, international cooperation, and marketing. Mr. Yan has led his team in reaching strategic cooperation with Bloomberg, Jefferies, S&P Global, Softbank, Alibaba, and in promoting the global presence of GTCOM Technology Corporation’s cross-language alternative data analytical solutions.