Why Social Intelligence Will be Key to Helping Markets Recover after the COVID-19 Pandemic

Alternative Data has experienced rapid growth over the last decade, where increasing numbers of traders now rely on other means of economic insight exterior to that provided by the government or other influential organisations.

A key source of alternative data is Social Intelligence or ‘Social Listening’, which monitors social media channels and other online news outlets for mentions of a particular brand, product or keyword, together with analysis of consumer sentiment.

Research has shown that Social Intelligence is a fundamental market indicator for the banking and finance sectors. This demonstrated by the correlation found between the stock price of the UK’s leading 11 banks and ESG (Environmental, Social, and Governance) content shared online via news channels and social media platforms.

For example, research conducted over a 12-month period found a strong correlation between negative ESG sentiment and a reduction in the daily stock price of Deutsche Bank. Comparatively, positive or neutral ESG sentiment relating to Barclays showed correlation to an increase in daily stock price[1].

During the start of the Coronavirus pandemic, traders reported fluctuations in the market but an overall positive indication as the government announced means of financial support to keep businesses afloat. Fast forward several weeks and markets are now suffering as an increasing number of businesses have entered administration and are struggling to operate under the imposed lockdown measures.

That said, how will Social Intelligence help traders during the coronavirus pandemic? And as a means of alternative data, will it be the first to show signs of economic recovery?

Accurate Insight into Consumer Confidence

Unlike Social Media monitoring, Social Intelligence provides accurate insight into consumer confidence and is able to reveal both negative and positive sentiment, ranging from anger through to surprise.

This means that as consumer confidence grows – be that in response to the government significantly increasing coronavirus testing or relaxing rules under the lockdown period – it is likely that the markets will too.

Savvy traders who use Social Intelligence as a means of alternative data will already be one step ahead, and through analysis surrounding market sentiment, will be able to assess when the economy will start to recover.

This will initially stem from small signs of hope, such as news of the UK lockdown study that revealed that average person with coronavirus now infects 0.62 other people, down from 2.6 before social distancing measures were introduced. If stats continue to show significant improvement, this will drive positive social sentiment and an indication of market recovery to traders who maximise this form of alternative data.

Understand How Markets Change

 Traders who tap into the power of Social Intelligence will have far greater insight into how a target market is likely to act and respond to certain developments within the news, be that environmental, social or political.

This means that traders who have continued to rely on Social Intelligence throughout the coronavirus pandemic will have a unique insight into how the consistent news updates or government press briefings are impacting the markets, enabling them to make more informed decisions as the pandemic progresses.

Having this unique understanding will not only help traders generate gains for clients, but will also provide them with the opportunity to predict how and when the economy will start to experience a positive change.

There is no doubt that the economy has a long way to go, with the FTSE 100 marking its worst quarter since 1987 due to the outbreak of COVID-19. However, the start of April has indicated slight promise, with market reports showing small growth.

Overall, Social Intelligence has the potential to play a significant role in helping traders over the coming months, not only in delivering greater market insight but also in providing an early indication for when the UK economy could recover.

[1] https://www.digital-mr.com/archive/view/digitalmr-finds-link-between-bank-stock-price-and-esg-buzz

 

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