Fintech Venture Targets Hedge Funds With Big-Data Research

  • Nowcast will crunch retail transactions to predict earnings
  • Brokerages in Japan are halting earnings previews after probe

A Japanese startup is entering the equity-research business in a bid to challenge the dominance of securities firms by using computers to crunch vast troves of information and predict companies’ earnings.

Nowcast Inc., a financial-technology venture formed last year out of the University of Tokyo, will begin providing automated earnings estimates of consumer goods makers as soon as October by analyzing millions of transactions at retail stores, Chief Executive Officer Ryota Hayashi said.

The move comes as pressure from Japan’s financial regulator prompts brokerages to move away from a long-standing practice of gleaning information from companies about their performance before earnings figures are released. Hayashi sees this as an opportunity for Nowcast to find other ways to estimate companies’ results and sell the research to active investors such as hedge funds.

“This doesn’t mean analysts won’t be needed anymore,” Hayashi said in an interview. “But we can replace some of the routine work around financial results, leaving the analysts to look at the longer-term trends affecting industries.”

Shiseido, Meiji

Nowcast already provides information on consumer prices in real time and will use similar technology to analyze big data, starting with retail-sales transactions, Hayashi said. The firm expects to begin predicting the results of about 200 companies including food makers Calbee Inc. and Meiji Holdings Co. and cosmetics maker Shiseido Co., and will expand the number to about 1,000 next year including firms in China and the U.S., he said.

The testing phase showed a high level of accuracy in estimating results of mainly domestic-focused companies with relatively simple structures and few subsidiaries, Hayashi said.

“We want to make this a standard service for investors -- something that they feel they must have,” said Hayashi, who is also CEO of financial app-maker Finatext Ltd., which bought Tokyo-based Nowcast earlier this year. The acquired firm has 10 employees.

New Era

The Japan Securities Dealers Association drafted guidelines in July urging analysts not to seek unpublished earnings figures from the companies they cover. That came after the Financial Services Agency reprimanded the local brokerage units of Deutsche Bank AG and Credit Suisse Group AG for improperly sharing non-public information with clients.

Mitsubishi UFJ Morgan Stanley Securities Co. is also turning to big data for its research following the probe. The investment-banking venture between Japan’s biggest bank and the Wall Street firm plans to publish an industry report based on analysis of more than a million patents to identify companies that are most likely to develop advanced technologies in the future, equity research general manager Kunihiko Shiohara said in an interview.

“It’s now an era in which analysts capable of analyzing will need to do so thoroughly,” said Shinichi Tamura, a Tokyo-based strategist at Matsui Securities Co., while adding that investors will still want to find out about companies’ most recent performance before others. “Early information from analysts is where a lot of investors win or lose in stock picking and investing.”

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