China’s First AI Fund Looks to Conquer the Market

China’s First AI Fund Looks to Conquer the Market

From the looks of it, Chinese investors will soon be able to use data-based recommendations provided by machines rather than humans, to profit in the Chinese stock market. Zheshang Fund Management Co. is planning to employ around 300 investment models to evaluate over 3,000 Chinese stocks in a bid to become the country’s first Artificial Intelligence fund run solely on suggestions from its machines.

Zha Xiaolei, the leader of Zheshang’s four-person AI investment team, divulged that the robots were first trained for a year by the country’s finest fund managers and market analysts to train them on every trick of the trade. The machines are now ready to take on their teachers and human counterparts when the fund opens its doors to trade investors in August, 2019.

Even though the number of investment companies who have employed AI and machine learning strategies keeps on rising, the success rate of using robots over human analysts so far has been varied. Funds that integrated AI into their predictive assessments have lagged a broader Hedge Fund Index since 2018.

Making advances in the unpredictable Chinese stock market, where 80 percent of trades are made by small, independently operated businesses, will not be an easy task. Add to that the fact that AI strategy and usage is still at a premature juncture, and is bound to take time in finding its footing.

In an effort to build a model best suited for China, Zheshang’s robots primarily studied the tactics used by 80 of the country’s consistently best-performing fund managers. They were also supplied with stock recommendations from 500 of the best analysts and business experts, and investment proposals from 200 chat groups. Zheshang also took care of the volatility issue by targeting the Sharpe Ratio, a determinant of risk-adjusted performance, as the essential indicator for the machines.

The fund churned returns at 26.4 per cent between September 28 and June 28, a time during which Chinese stock market overcame the negative sentiments and moved toward a positive era. The Capitalization-Weighted Stock Market 300 Index (CSI 300) added around 12 per cent returns.

In a big-data fund, managers study huge volumes of data to make informed decisions. With the advent of machine learning, computers improve their skill to autonomously locate trading signals as they ultimately churn more data. AI funds will be an easy sell to retail investors, since they essentially improve the performance efficiency of the funds.