News Sentiment on Coronavirus Pandemic: Darkest Before the Dawn or No Light at End of the Tunnel?

There are three important points we cover in this insight, on the basis of EMAlpha Sentiment analysis.

  • Coronavirus Country-by-Country Sentiment Time Series – The BIG NEWS of this week is BAD NEWS. Over the last few days, the Coronavirus news sentiment has deteriorated in eleven out of the twelve countries in our main panel (USA, China, Germany, Brazil, Italy, India, Mexico, Malaysia, Norway, Colombia, Australia and Poland). This doesn’t inspire much confidence that we are anywhere close to recovery. More importantly, out of the eleven countries in which sentiment has turned negative, more than half (total six) see rather sharp decline.
  • News Topic Sentiment for Key Words – When we do sentiment analysis for some key words such as Donald Trump, Fed Rate, Nasdaq Composite, Chinese Economy and the US Economy, we find that after his proactive steps over last week or so, there has been a big turnaround in news sentiment for the US President, Donald Trump. This matters for its linkage with how quickly and efficiently the biggest economy of the world will respond to the Coronavirus threat. The bad news here is that things don’t look that great for S&P 500 and the US economy sentiment.
  • Daily Coronavirus Sentiment Heat Map for Countries – The relative scores matter much more than absolute scores in case of Coronavirus news sentiment in terms of its impact on local markets. When we do a country-by-country time series analysis for Coronavirus news sentiment, we find that: a) the US is among the worst on relative scale as compared to other countries while Hungary and Norway are other two, b) the Coronavirus sentiment for the UK saw big change as things have improved considerably in absolute terms and ‘as compared to other countries’, c) Japan and Philippines also show improvement and are doing better than others.
Details and Inferences

The detailed discussion on FIVE parameters is as follows:

1) Coronavirus Country-by-Country Sentiment Time Series, 2) Coronavirus Sentiment Heat Map for Countries, 3) News Topic Sentiment for Key Words, 4) Crude Oil News Sentiment, and, 5) Aggregate India Equity Markets Sentiment.

Coronavirus Country-by-Country Sentiment Time Series

This is one of the most important charts because market reaction locally depends much more on how Coronavirus News Sentiment is evolving locally. The important takeaways:

  • Broadly things are looking gloomy when we do the country by country analysis for Coronavirus Sentiment. The Coronavirus Sentiment has deteriorated sharply in several countries including USA, India, Norway, Italy, Mexico and Colombia.
  • One of the most noticeable drops after massive improvement for a while is in Coronavirus Sentiment on China. As the infection cases spiked, the fears of ‘second wave’ led to a big decline.
  • The only positive news is from Malaysia where there has been an improvement in sentiment on Coronavirus. However, the fact that 6 out of 12 countries are reflecting sharp deterioration and 11 out of 12 countries are showing a dip makes this chart very depressing.

Fig. 1: Country by country sentiment score for select countries focusing on Coronavirus related news.

Daily Coronavirus Sentiment Heat Map for Countries

When we do a country-by-country time series analysis for Coronavirus news sentiment and   look at relative change on two scales, a) as compared to other countries, b) vs. immediate past, that influence the market direction locally, we notice:

  • the United States and China are the prominent countries which have   deteriorated over last few days in relative terms. The others are Norway, Hungary, Colombia and Chile.
  • After several weeks, there is some improvement noticeable from Europe and Japan, the UK, Philippines, Israel and Indonesia also show improvement.

Fig. 2: Coronavirus related News Sentiment Heat Map

News Topic Sentiment for Key Words

Because markets are influenced by the sentiment for news flow around some very important and immensely popular key words, the results are important for market direction.

  • There is a very high level of pessimism on whether Fed’s attempts will help the markets and the economy.
  • The sentiment has started to improve on Chinese economy but the biggest positive jump is seen for US President, Donald Trump.

Fig. 3: News Sentiment for select topical search terms

Crude Oil News Sentiment

Crude Oil prices are closely linked to markets and we track this separately.

  • Over last few days, we have seen a small improvement in sentiment after a big fall. This is driven by news reports that there would be a pause in price war between major players in the market, Russia and Saudi Arabia.
  • It will be interesting to see if this will be enough to support markets next week, so far it has not really helped much.

Fig. 4: Daily oil related News Sentiment

Aggregate India Equity Markets Sentiment

India is one of the major EMs we track and it is also interesting for a few reasons, a) the Crude Oil Price decline helps the economy significantly and is a big plus for the country’s economy, b) Coronavirus is still in its initial phases in India and the next few weeks will be ‘make or break’.

  • This is the big puzzle. The major market indices declined 6-7% for India though the aggregate market sentiment has improved considerably. While the fall is significant in markets, the spike upwards in sentiment indicates that something is amiss.
  • One possible explanation is that the Indian markets are excessively dependent on Foreign Investors and they are in no hurry to return to India. Either they find more interesting opportunities in other markets or they don’t have cash to invest at this point. It is also possible that they may have become more risk averse under current circumstances and not eager to look at India.
  • There is another possibility. Markets may have factored in the spike in trajectory of Coronavirus infections but there is still uncertainty on its impact on economy. This week, the market’s fall was more consistent and quite unlike what had happened the week before. On the week of the 23rd of March, the big fall on Monday was followed by consistent recovery which made up for the entire decline by Friday. But the week of the 30th of March witnessed   more regular and consistent drops.

Fig. 5: India stock market sentiment.

Coronavirus Numbers & Statistics

The total number of Coronavirus cases continues to increase, having crossed the 1 million mark globally. The US has the maximum number of total cases, although, as we mentioned before, the US is not in the top ten countries when looked at through the lens of number of cases per capita. However, the mood remains downbeat as we go into the week of April 5th. President Donald Trump has on multiple occasions communicated the chances of a “very painful two weeks”. The EMAlpha sentiment scores are perhaps just capturing this mood in multiple places.

Fig. 6: Top countries by the total number of reported Coronavirus COVID-19 cases.

Research Team
EM Alpha LLC

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About EMAlpha:

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.

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