‘Alt’ Data in Emerging Markets

Terry Flanagan

In increasingly volatile, global markets, news that is meaningful for investment portfolios doesn’t just come out of Washington, New York, London or Brussels.

Real-time, breaking news can surface from an oilfield in Nigeria, a street protest in Jakarta, or a business conference in Brazil. Or any of the countless other places in emerging economies, which are home to more than 80% of the world’s population.

George Goldman, Dataminr

“Market moving news can break anywhere at any time,” said George Goldman, vice president and head of finance sales at Dataminr, which uses cutting-edge technology to turn real-time social media signals into actionable alerts. “Emerging markets are critical to today’s global economy; it’s critical that traders receive early and reliable insights regardless of where or when news is breaking.”

One area of focus for emerging markets — and for EM traders and investors — is commodities. Many emerging-market nations are big producers of oil and metals, such as China, which is also a major consumer.

“With emerging markets taking an ever greater share of world GDP, their influence on global markets is growing, driving the prices of many commodities,” said Mohammed Hanif, CEO and CIO at Insparo Asset Management and portfolio manager for the Insparo Emerging Markets Credit Fund.

In addition to China, social signals coming from other key emerging-market economies are disruptinghow financial organizations consume information. From early indications of South African President Zuma’s firings of 15 ministers and deputies in late March, to minute-by-minute coverage of local sources following a pivotal Nigerian petroleum tanker driver strike in early April, social and Twitter in particular, continues to be a critical resource for surfacing real-time breaking news.

Mobile technology and social media have given more people the ability to both access and report real-time information to a global audience. Any individual, armed with just a smartphone, can break a major news item that moves stock prices or commodities.

For example, on the afternoon of June 15, 2016, Twitter user @ozgurkoklu, a self-described adman/designer/snowboarder, tweeted about shots fired and low-flying jets in the Turkish capital of Ankara. That eyewitness report was followed by more broadly disseminated reports of tanks in the streets of Ankara and Istanbul. An hour and 51 minutes after Ozgur Koklu’s tweet, the Turkish prime minister announced a coup attempt.

The bottom line was that travel and leisure stocks fell as the coup attempt became known; the money to be made was in selling or shorting the stocks upon the initial report.

Off-the-beaten path is fragmented, but fertile ground on which to source alternative data that can impact global markets. Given that emerging markets represent as much as one-quarter of the world’s market capitalization, there’s juice to be squeezed in local investments themselves, but even portfolios with zero EM exposure can be rocked by what happens there.

“To have information and data flow that is A, credible, and B, impactful, is probably harder to find in emerging markets than almost any other segment of the globe,” Goldman said. “But there’s as much or even more geo-political risk there than anywhere, and overall uncertainty abounds more there than in some of the European markets. If you’re able to leverage tools to surface and act on on-the-ground, differentiated and impactful signals from these emerging economies, you stand to have a significant information advantage on the competition.”

Mohammed Hanif, Insparo

Said Hanif, “not all emerging markets are the same and investors have to understand that there are different political and economic risks as well as different levels of transparency. Simply relying on data feeds is not enough — information sourced locally is key to understanding what are these risks and when will they create an impact.”

“Markets react quickly to Fed announcements, but there can be significant delays in reactions to changes on the ground in emerging markets,” Hanif continued. “Knowing this and acting on it is an advantage.”

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