Human Psychology, High Profile Covid-19 Cases and the Impact on Sentiment
In continuation with our write up of 10th March 2010, we have some interesting insights on how the local country by country sentiment on Coronavirus news flow has evolved and how it is linked to the performance of local stock markets. There are some clear takeaways on this;
- On a time series for the countries individually, you notice huge fluctuations in Coronavirus sentiment. In some cases (of which USA is the most prominent), the news flow sentiment has deteriorated rapidly.
- The same is the case with Canada in which the Coronavirus news flow sentiment has deteriorated sharply. But the reasons are perhaps different than US. In Canada, this could be because of a high-profile case of infection (Prime Minister’s wife).
- The huge volatility noticed in the markets such as US is linked with rapid deterioration on one side and the policy announcements on the other. If left to Corona alone, things could have been much worse.
- India is an interesting case because after the ‘V’ shape recovery in sentiment, the news flow has deteriorated but at a rate which is not rapid. This reflects in sharp recovery in markets as noticed in Friday’s trading session.
- The variance between countries on day to day basis continues (for example, Japan is the country with the most NEGATIVE sentiment on the basis of news flow for 14th March) and while things look much better for Korea, Chile and Brazil.
- All of this leads to the question: Can the sentiment analysis be used for taking a short term call on markets? And the answer is a resounding YES. As shown in the Chart 3, the portfolio incorporating Coronavirus sentiment does significantly better vs. BSE Sensex.
Chart 1: Time series for Daily Sentiment for countries on Coronavirus
Chart 2: Daily Sentiment for countries on Coronavirus
Chart 3: Market performance of Sentiment based Portfolio vs. BSE Sensex
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 firstname.lastname@example.org.
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.