Before the coronavirus sent stock markets tumbling at the fastest pace since the 2008 financial crisis, Dymon Asia Capital (Singapore) sensed trouble.
The hedge fund firm was combining information on past outbreaks with a raft of so-called alternative data, including Google searches in the US and daily readings from China on everything from road congestion to flight schedules and test-kit availability. The numbers convinced Dymon to take short positions against the S&P 500 and an index of Chinese stocks in Hong Kong, trades that would become its biggest money makers in February and March.
"It was clear the market was underpricing the impact of Covid-19," Danny Yong, Dymon's chief investment officer, said in an interview. The firm's flagship US$2 billion Dymon Asia Macro Fund has climbed about 40 per cent this year.
While investors like Yong have been using alternative data for years, the coronavirus has prompted a fresh surge in demand for off-the-beaten-path statistics that might shed light on the pandemic's impact on economies and markets. Interest in Chinese data has been particularly strong as money managers try to get an early read on efforts to contain the virus and reboot the world's second-largest economy.
"After the outbreak, we saw a spike in demand for data to show what was really happening in China," said Hong Kong-based Heatherm Huang, co-founder of Measurable AI, a company that tracks business receipts sent via its email-aggregator service. "Now, investors want to know how fast Chinese companies and the economy can recover."
What happens in China has rarely been more important for global money managers. But the time lag between government data and the fast-changing reality on the ground " along with official attempts to play down bad news during the early stages of the coronavirus outbreak " have made an already opaque economy even more difficult to parse. That may be one reason why many investors initially underestimated the fallout.
It also helps explain why alternative data providers in China have seen a recent jump in demand.
For Beijing-based BigOne Lab, the pickup has been noticeable among venture capital, hedge fund and private equity clients. Backed by investors including S&P Global Ratings, BigOne tracks everything from the number of merchants operating on China's largest food delivery site to flight traffic and hiring patterns. Among the notable trends to show up in BigOne's data in recent weeks: inbound flights to China have spiked and companies are hiring blue-collar workers at the fastest pace since November.
"There's a lot of curiosity on just how much China has really recovered," said Chen Mu, BigOne's founder. "Stats like this help give people a better understanding."
There are now about a dozen start-ups in China specialising in alternative data, according to Wu Haiyan, managing partner at China Growth Capital, a VC firm that invested in BigOne. Some global players, including UBS Group AG, are also pouring resources into the space. About one-third of the staff at the Swiss bank's specialised data unit are now based in China, according to Barry Hurewitz, the global head of Evidence Lab Innovations at UBS.
Bloomberg LP, the parent company of Bloomberg News, also provides data and analytics to financial professionals in China and around the world.
Evidence Lab works with scores of partners and licenses some of its data, which includes remote sensing images of ship docks and transaction data from e-commerce sites. The level of detail can get so specific that users are able to track how many coffee shops Starbucks opens in China on a given day, and compare that with its largest local competitor Luckin Coffee.
Evidence Lab operates a subscription model but is also exploring other options including project-based fees, Hurewitz said. BigOne sells subscriptions and generates a few million dollars a year in revenue, said Chen, declining to be more specific. Measurable AI offers subscriptions by company ticker and country, which can range from US$2,500 to US$10,000 per item a month.
WeBank, the online lender founded by Chinese tech giant Tencent Holdings, also offers company-specific data and research. By comparing the number of cars parked in front of Tesla's Shanghai factory between January and February, it was able to predict when the electric-vehicle maker had restarted production.
"Quantitatively driven funds especially are trying to incorporate our indexes into their investment models," said Wu Haishan, who previously worked at BlackRock Inc. and is now vice general manager of WeBank's AI team. "As the coronavirus becomes more of a global issue, more and more companies will be interested in this."
China does ban commercialisation of personally identifiable information, however.
"One of the most important things for clients such as hedge funds is that our data is legal and doesn't violate privacy laws, because if not, it can lead to huge penalties, not only from Chinese regulators but also US regulators," Measurable AI's Huang said.
Increasingly accurate data will be available in future from sensors attached to Internet of Things devices, Wu said. China's high mobile penetration rate, meanwhile, means ever more aspects of peoples' lives are open to analysis, especially as citizens grow accustomed to giving away data in exchange for convenience. While that can raise tricky questions about privacy, most alternative data companies take steps to delete any personally identifiable information in line with Chinese laws.
"The whole world is becoming integrated and digitised," said China Growth Capital's Wu. "Investment decisions now and in the future all need to be based on big data."
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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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