One of the hottest topics in the field of artificial intelligence is machine learning. The algorithms used by the likes of Netflix are able to nudge us to make decisions we did not even know we wanted to take. But at heart, machine learning algorithms are simply extremely good pattern spotters and will beat humans every time in this field. However, many of the interesting problems in cognition are not represented by the classification problems that machines are good at. We should thus beware some of the hype and treat machine learning as a complement to human skills rather than a replacement.
Machine learning is among the buzzwords asset managers are increasingly paying attention to. For one thing, machine learning tends to make processes across the global value chain more efficient. Investing in companies that generate machine-learning and artificial-intelligence (AI) solutions could hence mean investing in a potential megatrend of the next decade. Furthermore, like any industry, the financial industry and not least asset management will need to adopt the new technology. Consequently, the pressing question for many is: will machine learning eventually replace the human touch in stock selection and asset allocation decisions?
This month we look at the concept of machine learning. It’s a topic that always reminds me of the Robert Harris book ‘Fear Index’ in which a machine called VIXAL is created to trade financial markets. The machine delivers enormous profits but is uncontrollable – even efforts to burn down the servers don’t work. One of the fascinating scenes in the book is when VIXAL sells short an airline just before a terror attack brings down one of the company’s aircrafts having scanned the Internet and found evidence of the planning of the attack on a terror-related website.
A plethora of issues has weighed heavily on global equity markets in recent weeks: the fear of rising interest rates globally, the latest US threat to impose new tariffs on China, tensions in the Middle East caused by the Khashoggi case and Iran sanctions, Italian budget negotiations with the European Commission, China’s economic slowdown, and worries about possibly overvalued US stocks to name but a few.
Rebecca Sin, from Commerzbank’s ETF Sales Trading Asia Team, is a keen advocate of exchange traded funds (ETFs). She made a presentation to the Hubbis Investment Solutions Forum providing Asia-based high-net-worth individuals with further information on ETFs and trading strategies.