Investment Ideas: Sentiment Analysis of Global Macro & Geopolitical Risks

The analysis of economic sentiment indicators and big data investing has risen to fame as a robust foundation for global portfolio and investment managers to trade their global macro strategies. RavenPack has been a frontrunner in the space and a platform of choice for many quantitative investors.

In this post and its corresponding case study, we will see that this approach could also become essential for discretionary investment managers conducting macroeconomic analysis. Investors are able to integrate in-depth country investigations in order to identify imbalances that could unlock great investment opportunities while capturing underlying risks and managing them more effectively.

By looking at these economic sentiment indicators to assess the global economic environment, we observe a slightly positive outlook, driven by new and large-scale actualities and significant political risk, with buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade.

Overview of the “Global Economic Outlook” Dashboard

Among many useful dashboards already built and made available by RavenPack, the “Global Economic Outlook” dashboard is of immense value to discretionary investors who are looking to gain a broad understanding and insight into the global macro sentiment reflected by RavenPack’s proprietary sentiment score. Moreover, the dashboard allows us to dive deeper into news stories and public announcements about specific regional areas, governmental systems, or economic indicators, considered to be at the center of the global macroeconomic shifts.

Positive Global Economic Sentiment with the Fed at the Steering Wheel

RavenPack’s “Global Economic Outlook” dashboard includes a treemap that visualizes the sentiment of macro elements retrieved from news stories during the antecedent month or week. The following treemap summarizes the monthly sentiment profile of key forces that are impacting the global economic outlook, as of June 17, 2017. All these macroeconomic factors are factored into the sentiment score calculations, ranging from -1 to +1 (negative to positive), while their weights depend on their relevance and the magnitude and direction of their short-term future potential impact on financial markets. From the dashboard, it is clear that the U.S. Federal Reserve and the United States as a whole are still at the steering wheel.

The U.S. Federal Reserve Bank has dominated financial news with 2,232 “relevant” news articles during the past month, especially with its interest rate hikes path for the year 2017 and the recent and much anticipated rate hike in June. Many articles identified by RavenPack are speculating about the timing of the next interest rate hike(s) and discussing their potential impacts on the financial markets and emerging economies, leading to an assigned negative economic sentiment score of -0.76. The corresponding big red box illustrates the negative impact that this foreseen rate increase will have on future growth and performance prospects of financial markets.

Moreover, other boxes in the treemap have had their share of impact on the global economic sentiment outlook. On one side, there are countries and regions that have contributed positively to the global economic sentiment, such as: the United States (+0.25 sentiment score) due to a robust labor market and continuous economic growth; India due to a better than anticipated performance; Eurozone due to improved inflation and a recovering economy expanding at its fastest pace in years; Japan due to an improving economy following a successful implementation of the monetary policy segment of Abenomics; and Canada (high +0.62 sentiment score) due to a surge in economic growth thanks to increased consumer spending and other factors.

In Asia, we have witnessed stabilization in growth; however, underlying risks linked to elevated levels of debt and increasing trade apprehensions with global partners have emerged. All these Asian countries, and many more, have contributed positively to the global economic score, reflected in the green landscape of their corresponding boxes.

Despite the Sunny Global Economic Sentiment Outlook, Pronounced Risks Require Careful Attention

On the other side, there exist countries and macroeconomic elements that have contributed negatively to RavenPack’s global economic sentiment score and their economic profiles proffer varying risks to the global economy; these factors and countries should be carefully assessed and managed by any global investor while constructing their portfolios. For instance, the U.K (-0.13 sentiment score) saw its economic growth prospects and GDP growth figures (with a negative 0.23 sentiment score) beaten by those of every nation in the Eurozone as a weaker pound fueled inflation after Brexit, which in turn hurt consumption, retail spending, and the willingness of businesses to invest.

Moreover, another country that exhibited pronounced risks and should be carefully approached by investors is Australia. With a negative sentiment score of -0.28, the country has recently achieved the lowest GDP growth rate in almost a decade hindered by bad weather and deceleration in home building.

Conclusion

As a conclusion, RavenPack data indicates the overall sentiment of the global economic outlook as being slightly positive with a sentiment score of 0.14. There is no doubt that the analysis of sentiment using big data analytics retrieved from hundreds of thousands of news stories, is of great worth to any discretionary or fundamental investor seeking to trade their global macro strategies in an efficient and effective manner.

The analysis of different sentiment scores and the elements contributing to the global economic mood showcases which areas investors should approach and capitalize on and which ones they should steer clear of or short sell while building their portfolios and investment strategy.

The supplementary full case study examines each of the factors presented in this post at a deeper level as well as their significance to investors.

Hilal El Marraki is an investment analyst and writer specializing in investment banking, financial markets and M&A transactions.