Looking for an Edge on China Stocks? Try Weibo
Developers are introducing programs to X-ray public chats
China’s web has about 80 billion social-media posts a year
More than 125 million Chinese use their Sina Weibo accounts every day to gossip about celebrities, find hip restaurants and stay in touch with family. They also talk about stocks, and that has entrepreneurs listening.
At least a dozen developers are introducing products that use artificial intelligence to scour social-media posts in China for comments about shares on the Shanghai and Shenzhen exchanges. The software searches for keywords and then distills its findings into summaries of whether investors are positive or negative about particular companies.
Individuals comprise the majority of investors in China’s $6.4 trillion stock market, and institutional traders want tools to find out which ways the retail crowd are leaning before making their own decisions. Programs such as Market Mood, FinSentS and WiseEnterprise that analyze Internet forums are part of the $1.2 billion spent annually by financial-services firms on market-data feeds, according to consulting firm Greenwich Associates.
“If you see the Chinese stock market, people just react to any news flow coming from WeChat, Weibo or any type of social media,” said Kevin Leung, director for global investment strategy at Haitong International Securities Group Ltd. in Hong Kong. “There is definitely an impact on stocks.”
The programs also help investors follow company-generated posts on Weibo, the most popular of China’s Twitter-like microblogging platforms. Twitter and Facebook are among the internet services banned by China’s government, giving rise to local counterparts from Weibo Corp. and Tencent Holdings Ltd., operator of WeChat.
Other Chinese social-media networks being scraped include Minkabu Inc.’s Caiku and East Money, which host blogs about stock trading. The Shanghai and Shenzhen exchanges have a combined 111 million investor accounts, according to China Securities Depository and Clearing Corp. data. There are about 80 billion social-media posts a year on China’s internet.
China Market Mood was developed by Berkeley, California-based startup Pluribus Labs LLC, which already offers a “sentiment analytics” product in the U.S. The Chinese version will be released this month, and the company plans to open an office in the region by year’s end, Chief Executive Officer Frank Freitas said.
“The Chinese market is increasingly a bellwether for moves in other markets, not just in the Asian region but in other regions,” Freitas said. “Given the high degree of retail-investor involvement in this market, maintaining a timely understanding of the tenor of these participants can provide valuable insights.”
Weibo, which counts Sina Corp. and Alibaba Group Holding Ltd. as shareholders, had an average of 126 million daily active users in June -- a 36 percent increase from a year earlier, according to a company statement.
The companies interviewed for this story declined to comment on their revenue from market sentiment products and how much they’ve spent on their development.
The efforts to scan Chinese investor sentiment comes amid a downturn in the mainland’s markets. The benchmark Shanghai Stock Exchange Composite Index has fallen 13 percent this year, while the Shenzhen Stock Exchange Composite Index has seen an 11 percent decline.
Market Mood uses a proprietary dictionary compiled through machine learning to search posts for words such as bullish, bearish, gap and rip, Freitas said. The program also scans for pairs of words that denote positive or negative values.
The software compiles what Freitas calls a sentiment score. That number is tallied for specific periods of time to meet the requests of clients, who may want to target certain industries.
News sentiment analysis, including that provided by Bloomberg LP, Thomson Reuters Corp. and other news and data providers, is being increasingly used by investors.
Freitas has worked in the financial services industry for 25 years, including as chief operating officer for Instinet LLC. He helped start Pluribus Labs in 2014.
InfoTrie Financial Solutions Pte Ltd. uses its Financial News and Sentiment Screener, or FinSentS, to scan more than 1,000 blogs and news sources. The company, which focuses on English-language social media, is working on technology to decipher Mandarin posts on Weibo and WeChat, the messaging service with more than 800 million monthly active users.
“We have received quite a few requests from hedge funds, asset managers around the globe who would like to get insight from Chinese news about Chinese markets,” said Zhicheng Long, chief technology officer at the Singapore-based firm.
InfoTrie plans to open an office in Hong Kong this year, he said.
Hong Kong-based Wisers Information Ltd. said its analytics products, including WiseEnterprise, use the world’s largest database of Chinese news and information, with more than 3.5 billion items dating to 1979. The company’s core technology was first developed in 1992 as a research project at the Chinese University of Hong Kong. It analyzes Mandarin, Cantonese and English sources, and a group of about 20 linguistic editors maintain the software’s dictionaries, said Chao He, a research director at Wisers.
Yet not everyone is sold on the utility of these services.
Software that simply scours the internet for mentions of companies or their executives isn’t going to be much help to investors, said Michael Aitken, CEO of the Sydney-based Capital Markets Cooperative Research Centre Ltd.
“To summarize what’s being said by the people to understand the sentiment is a much tougher task,” Aitken said. “Lots of people are trying to use this technology to get an edge.”
There also is the danger of intentionally being misled. The Chinese government fabricates about 488 million social media comments a year in an effort to distract its people from bad news and sensitive political debates, according to research by Harvard University academics. The affected sites include those run by Sina, Tencent and Baidu Inc.
Some institutional investors also say decisions should be based on more substantial evidence than opinionated internet postings from non-professional investors.
“The crowd can be wrong,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “But, at the same time, sheep follow sheep.”