Hedge fund’s profitable Big Short shows why demand is surging to use alternative data in guiding investment strategies

What happens in China has rarely been more important for global money managers

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

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Published: 11:21am, 4 Apr 2020Updated: 11:21am, 4 Apr 2020

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.