China Securities Index Company, a joint venture between the Shanghai and Shenzhen Stock Exchanges, is launching an index which incorporates online sales data from Alibaba, China’s largest online commerce company. The index represents an innovative use of big data in the creation of investable product.
The index is launching on January 21st with over four years of historical data dating from December 31, 2009. The index will select stocks based on three factors: a valuation measure comprised of metrics such as price to earnings and price to sales; a technical analysis measure incorporating various technical analysis metrics; and a big data measure derived from Alibaba online sales data.
The index methodology will use the online sales data to rank industry sectors in terms of sales growth, price and supply-demand. The industry values will be apportioned to individual stocks based on their industry market share.
The online sales data is being provided by Alipay Information Service Platform, a subsidiary of Ant Financial Services Group, an affiliate of Alibaba Group. The data is processed by Hundsun JuYuan Data Service Co., Ltd, a Chinese fintech company that provides financial software and data. Alipay clears 80 million transactions per day, and in one day last year processed $9.3bn of transactions.
Here is the link to the CSI index announcement: http://www.csindex.com.cn/sseportal_en/csiportal/open_anno.jsp?url_s=/sseportal_en/csiportal/gywm/gsdt/20141226_1_en.html
Creating investment product from research can be a lucrative business model as the recent sale of technical analysis firm Dorsey Wright to NASDAQ has shown. Creating investment product from big data is a logical corollary, which will add to the attractiveness of big data to financial markets. Firms which are brokering big data to financial markets participants might be in a position to benefit from the trend.
The action by China Securities Index Company also signals that thought leadership on investment product is not the exclusive property of established index providers. Similarly the volume of transactions on Alipay promises to dwarf any of the current western online sales leaders. China’s big data will be big indeed, and it will be mined and exploited by new Chinese competitors.