Coronavirus News Sentiment: How much is NOISE in the SIGNAL?
Over last few weeks, Corona Virus has led to a worldwide scare. As of now, the death toll in China has surpassed 700. According to the official data released early Friday by China, more than 70 new deaths and 3,100 new cases emerged in the previous 24 hours alone. What makes the matters worse is that the total number of confirmed cases has risen to more than 30,000 and the sceptics fear that this number is only a small percentage of actual infections.
As expected, this is affecting the global markets too. Though it is believed that there is a serious clampdown by Chinese authorities on the type of news flow leaving its borders, but with each piece of news (good or bad), the fortunes are fluctuating. For example, global markets heaved a sigh of relief when it was reported that Gilead Sciences has offered an experimental drug for Corona Virus treatments and testing and that the biotech firm has formalized an agreement with China to conduct clinical trial of Remdesivir, supposedly an effective drug against Corona Virus.
There are several important aspects in how markets have reacted to these developments. The first is that though this is a global health emergency and there is no proven cure yet in sight, the media coverage is still disproportionate considering the tangible impact estimated as of now. The virus attacks are very much like terrorist attacks, they generate more coverage than the events with similar or even higher impact. In the age of rapid information dissemination and huge role played by social media, this skew is even more prominent. Naturally, financial markets also react more to these events.
The second interesting aspect is that the maximum negative impact has been outside China. One of the worst affected countries from Corona Virus is Thailand. It is anyone’s guess how long it will take before infection rates stabilize, but it is quite possible that due to its size and diversification in economy, China will be less negatively impacted than some of the other smaller countries in its neighbourhood. More granularly, different markets and companies will react differently to these news developments. The same news can very well be negative for some industries (airlines and tourism) and good for others (some specialized pharma and biotech firms, manufacturers of masks, etc).
The third aspect is that there will always be some participants in global financial markets who will overreact and there will be others who will barely flinch. It is difficult to tell a-priori who is right and who is not, and only time will tell. Butthe point gets reiterated that the sentiment plays a much important role than tangible impact of material developments. Whether the impact of Corona Virus is NOISE or SIGNAL or a little bit of both, the reaction of financial markets proves the age-old dictum ‘News may be the same, but the impact could be vastly different because of the varied nature of Sentiment’. The tangible impact and news flow matter for the markets but the sentiment matters much more. And the analysis of sentiment helps one position better with respect to the market developments. In part 2 of this blog, we will look at how sentiment evolved over the last one month in some of the worst hit Asian markets
EM Alpha LLC
For more EMAlphainsights on Emerging Markets, please visit https://emalpha.com/insights/. To know how you can use EMAlpha’s unstructured data on Emerging Markets for better investment decisions, please send us an email at email@example.com.
EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.
This insight article is provided for informational purposes only. The information included in this article should not be used as the sole basis for making a decision as to whether or not to invest in any particular security. In making an investment decision, you must rely on your own examination of the securities and the terms of the offering. You should not construe the contents of these materials as legal, tax, investment or other advice, or a recommendation to purchase or sell any particular security. The information included in this article is based upon information reasonably available to EMAlpha as of the date noted herein. Furthermore, the information included in this site has been obtained from sources that EMAlpha believes to be reliable; however, these sources cannot be guaranteed as to their accuracy or completeness. Information contained in this insight article does not purport to be complete, nor does EMAlpha undertake any duty to update the information set forth herein. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information contained herein, by EMAlpha, its members, partners or employees, and no liability is accepted by such persons for the accuracy or completeness of any such information. This article contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of certain investment strategy. All are subject to various factors, including, but not limited to, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting the operations of the companies identified herein, any or all of which could cause actual results to differ materially from projected results.