By Tom Nigro, Head of North America at GTCOM-US
The COVID-19 pandemic and its vast impact have pushed businesses in all industries to adapt. When it comes to the investment landscape, we’ve seen an influx of data-driven investors and analysts looking to increase the sheer level of information they’re utilizing to identify value across the global financial markets and stay ahead of the curve.
The increased use of advanced technology and alternative forms of data acquired through tools like AI and machine learning is firmly on the rise. Gone are the days where investment strategies were solely based on traditional data methods alone, as investors are now seeing that these approaches are not enough to truly differentiate a portfolio and drive the alpha they need.
This is where alternative data comes in, unlocking the power of deeper, smarter, almost infinite insights into investment opportunities. Alternative data provides investors with a much more powerful means of driving alpha, as the signals extracted can help them to access much deeper and more unique analysis of their markets than ever before.
New alt-data forms on the rise
A popular trend that has emerged in the alternative data space recently is that of Merchant Transaction Analysis or Consumption Data Analysis. This type of data, which is directly correlated to specific payments, obviously has a very strong ability to predict company revenue and overall business performance. It’s no surprise then that it’s highly sought after. The problem is that it can also be difficult to access, particularly when it comes to foreign markets like China.
However, investors tracking various global retail brands, such as Nike or Apple, need to take into account the tremendous impact of foreign markets, such as China’s market, on the overall global revenue of a business. To accurately complete their global picture and make informed decisions, investors are increasingly looking for Merchant Transaction Analysis or Consumption Data Analysis from China’s market. We can expect to see investors continue to pursue this previously untapped data source from China over the course of 2021 as the alternative data industry steps in and provides transaction-based datasets that were historically inaccessible to Western investors.
This spike in interest in Merchant Transaction Analysis or Consumption Data Analysis does suggest that investors have less and less confidence in traditional forms of analysis based on market data alone. The focus on acquiring alternative datasets like this throws into question whether investors can build a useful picture of market opportunities with traditional data only.
Consolidation of a fragmented universe
Another key trend we are already seeing this year is the demand for consolidation of multiple alternative data streams, turning what has been to date a fragmented, infinite universe of data into a more streamlined, more digestible resource. Again, this is a trend that is particularly pressing when it comes to using alternative data as a gateway to lesser understood markets like China.
The possibilities of alternative data are limitless, but with that come challenges of scale. Investors are looking for clearer, aggregated pictures that they can easily analyse and use to extract value, rather than seeking lots of raw, segregated data sets, which are resource intensive to extract signals from.
For example, in the China A-shares market, investors often track individual stocks in industries that are staples in the region like luxuries or technology. They may want to leverage alternative data forms on these particular stocks, such as geolocation data, merchant transaction data, supply chain data, recruitment data, or social sentiment data. All of these are typically segregated datasets that can be difficult to access and even harder to analyse in a holistic way.
Therefore, there is huge opportunity in aggregation that brings together multiple forms of alternative data in a way that provides a clearer, more usable picture. It’s this increased accessibility and usability that is likely to make alternative data more manageable, more widespread, and more impactful.
What investors want from alternative data is simple: the ability to extract their own alpha signals and bring what was formerly invisible to them within clear sight to do so. The alternative data industry’s job, then, is to aggregate vast swathes of complex data clearly, enabling investors to make their own informed decisions.
Alternative data acts as a powerful international gateway in global financial markets. The demand for investing into foreign markets firmly exists, but what has been lacking in the past is trustworthy and clear data from independent sources that enables investors to make informed decisions and extract real value for the information in front of them. However, this is changing at a rapid pace. This is certainly the case for China, where advanced technology, like AI and machine learning, is now stepping in to meet demands for a more transparent picture of market opportunity – and Western investors are quickly taking note.
When considering emerging markets, alternative data’s role is to open the treasure trove for global investors to see inside – helping them access a level of information they might previously have only been able to attain from Western markets. This is what makes alternative data an unparalleled stepping stone into new global territories for investors.
And as international market opportunities continue to grow, that gateway becomes more important. Now more than ever, in this period of immense global uncertainty, investors need to be at the forefront of market changes in real time – and that means having the ability to extract more alpha from their data. It’s time for AI, machine learning, and advanced NLP technology to deliver that in the form of smarter, more impactful insights.