How alternative data can help chart path for a Covid-19 recovery

THE questions facing investors since the Covid-19 outbreak are myriad, and rapidly evolving. How quickly is the virus spreading? How are people reacting to lockdowns? What will be the pace of a consumer recovery as social distancing measures ease?

These questions can be difficult, if not impossible, to answer using traditional data sources. China is a good example of this. It was the first country to face Covid-19, and it is now reopening its economy. Factories have resumed production and companies have announced details of their store reopenings. But these details only represent half of the picture. Are consumers returning to shops and restaurants in the same numbers? Are they spending like before? Have consumer habits permanently changed as a result of a prolonged period spent at home?

AlphaWise, the alternative data platform of Morgan Stanley Research, helps to answer these elusive questions. It was established 12 years ago to provide techniques like web scraping, market surveys and interactive data visualisations for our global research team.

Alternative data has become exponentially more valuable amid the economic and market dislocation in 2020, and AlphaWise allowed our economists, strategists and analysts to be very nimble when it came to assessing Covid-19 impact. Within Asia, China has been our primary market focus.

Since early March, we have been surveying about 2,000 Chinese consumers weekly to determine how they were spending their time and money as the country slowly reopened.

In some ways, respondents showed a very quick normalisation pattern - 94 per cent of them were back at work by mid-April, versus 76 per cent in the week of March 9. However, other signs were less optimistic. About 70 per cent of respondents planned to leave the home only for necessities in the next week, a figure that has remained stubbornly high. Only about one-quarter of them planned to go out for discretionary shopping or socialising, and our China economists are expecting a gradual economic recovery in part due to slower consumption.

With that said, our data identified diverging trends among consumption categories that can provide important insights for investors.

Mobile video games, online videos remain very popular

Unsurprisingly, online activity spiked during the initial wave of social distancing. But importantly for major Chinese Internet companies, our survey showed that people still plan to play more mobile video games and watch online videos even as they return to work. Spending rates for these activities are solid, a potential indication that Internet companies are tapping a new pool of customers.

For goods and services, people intend to increase their spending on groceries and apparel, while cutting back on luxury goods and electronics in the next month. For the critical 5G smartphone supply chain, however, demand is resilient, as about 60 per cent of respondents plan to buy one within 12 months.

Other clues about the Chinese consumer can be found online. AlphaWise has been tracking online job advertisement data for several years, and this has shown signs of stabilisation after a rapid decline in listings from late January. Our economists believe that de facto unemployment and underemployment could peak at 80 million and 100 million in the near term, and online job sites statistics can provide much higher frequency signals on employment trends than official data.

AlphaWise consumer data helps to support our economists' view that a China economic recovery will be gradual. We also look to global companies for a more holistic view on business conditions.

The AlphaWise Global MNCs China Sentiment Index tracks how major companies are commenting on their China businesses during quarterly results calls with the investment community. Using machine-learning techniques, our sentiment tracker provides an aggregate score of all China mentions, based on about 2,000 data points from 400-500 global companies per quarter. Given the importance of China to many global corporates, we believe that this data provides an important lens on how conditions are trending from quarter to quarter.

During the most recent results season running through February, we observed the lowest MNC Sentiment Index scores since we began tracking in the past two years. Our automated data collection process meant we could run the index weekly for real-time evidence of how quickly sentiment eroded from late January. Sentiment was weakening even as many global markets remained buoyant, and the MNC Index moves foreshadowed the disruption that soon took hold across the world.

Looking ahead, we think that investors will shift their focus to the longer term, trying to gauge how these recent trends may turn into structural shifts in consumer, corporate and market behaviour. Morgan Stanley Research will continue to leverage AlphaWise to address these critical questions with the help of alternative data.