Custom Databases For Financial Analysis

Financial Analysis and Research relies heavily on the data mined from the various online and offline sources. Mining this offline data is many a times a herculean task as it involves not only parsing the annual reports but other records that are publicly available at various government institutions. Once this data is obtained, it needs to stored in a structured format. This article gives a nice overview on the importance of sourcing the data for such custom databases.



Custom Databases:

Many financial researchers require the databases stored in the format they have tried and tested over the years, but due to the lack of time have decided to outsource this activity to KPOs. Designing the schema to ensure that the requirements are met is a cumbersome activity. Further, this task becomes non trivial as the Atomicity, Consistency, Integrity and Durability of the database needs to be ensured. Many database engines ensure the above criteria are met however, the processes feeding this data must also ensure that none of the above criteria are violated. This is extremely critical when operating with the offline data which is entered manually.

Presenting the Data:

Storing the data in a structured format is just the tip of the iceberg, as the UI that allows users to access the data needs to be designed. KPOs that operate in the area of financial research and analysis have lately mastered the art of not only mining the data and storing them in structured and custom databases but also in providing some neat user interfaces to easily access this data. This activity has been many a times won accolades from banks and fund managers for being a time saver.

A new beginning for the Auto Sector or is it the beginining of the end?

This Tuesday shall be remembered as a dark day for the auto industry as it marked the beginning of the company wide reduction of General Motors Corp.’s salaried workforce. GM is said to have told about 160 people at its manufacturing engineering operations in Warren that they would be laid off as of April 1. GM is currently surviving on $13.4 billion in government loans and has requested another $16.6 billion. In addition to white-collar jobs, GM is expected to eliminate 18,000 more U.S. blue-collar positions by year's end to bring their labor costs to make them on par with their Japanese counterparts who are also facing the brunt of the auto sales downturn in 27 years.

The absence of this bailout package would have put the global auto sector on the brink of collapse. The critical nature dawned to the world when GM bought a few weeks of time by letting Suzuki buy back the 3% of stake GM had in Suzuki. There was a fear that if the even one of the big 3 in Detroit - Ford, GM and Chrysler - failed the auto sector would have collapsed. The supplies of the auto components at sourced from small shops across the world which tend to more than one auto major. If any one of these 3 collapsed, then there was a chance that these small industries would collapse, thus affecting the supplies of the other OEMs which have their presence scattered all over the world. Financial researchers who have mastered sector research were spending sleepless nights to study the impact this bailout on the various sectors so were the fund administrators who were worried of the health of their funds.

Save and Invest

There has always been a dilemma in my mind regarding savings or investments. I came across a nice post regarding the never ending conflict between savings and investments. Many financial researchers suggest that the cash in hand should be put to optimal use by a using financial instruments that give a perfect blend between savings and investments.

Some consider saving as a protection or insurance from the volatilities of investment in the markets, some stretch this concept further and consider hedge funds as savings that can protect them from the market turbulence. One of the oldest forms of such savings was gold. This has even been given a religious flavor as some religions encourage buying gold on special days and festivals. In India this is coupled with Government Bonds, Government Savings Schemes and Fixed Deposits.



Importance of a perfect blend of Savings and Investment:

In his speech on Mar 24, Barack Obama said, "At the end of the day, the best way to bring our deficit down in the long run is not with a budget that continues the very same policies that have led to a narrow prosperity and massive debt. .... It's with a budget that leads to broad economic growth by moving from an era of borrow and spend to one where we save and to one where we save and invest".

The need for the perfect blend of savings and investments that results in the optimum growth is the primary motivation that has led to the evolution of many financial instruments and mathematical models to optimize these instruments. Financial researchers and KPOs have been known to toil hard to study these models to ensure that the desire for this perfect blend of investments and savings is attained.

Sovereign wealth funds

Sovereign wealth funds are state-owned funds that are invested in different avenues across the globe. The money for such a fund is accumulated by the country or its central bank from sources like banking system, oil trading, foreign currency reserves, pension funds, precious metals etc. They are assets of the corresponding nation. They are generally invested with a long term horizon. Investment management entities are setup by the state to manage these funds.



Creation of Sovereign Wealth Funds

A sovereign fund is created when a nation has excess liquidity than is desired, which cannot be immediately consumed. This liquidity is maintained in the form of reserve currencies, precious metals, oil etc. These funds are used as a source of stability or a cushion against volatility in the international market for raw materials that are imported. By employing these funds, one can control the impact on the government expenditure due to the short term volatility of markets. During the recent credit crisis there were stories of some sovereign wealth funds making bad investments in Wall Street firms that have collapsed and needed cash infusion.

Concerns regarding Sovereign Wealth Funds:

There are certain concerns regarding these funds. Lack of transparency, no clear goal sometimes and their huge size which can have a great impact on asset markets. The total worth of most of these funds globally is now more than $3 trillion and growing at a fast pace. There are also security concerns due to these foreign investments as one of the potential motive might be to control certain strategically important industries of the country.

I came across a financial research article by S G Analytics, a KPO about these funds. The article argues that protectionist barriers are not the answer to security concerns arising from the nationality of the incoming investment. A more transparent and good regulatory environment is better suited to address these concerns.

BRIC: Emerging at a Fast Pace

Brazil, Russia, India and China (BRIC) have been some of the fast growing developing economics in the past few years. The name BRIC was first coined in 2003 by Jim O'Neill, the head of global economic research at Goldman Sachs. These four countries are also being referred to as the big four in the arena of emerging markets.

Of the BRIC Nations, according to this article, India and China have caught the fancy and faith of many investors as a result of which the investments to these countries have not stopped flowing. As a result of this the services of many KPOs specializing in the research of emerging markets, have been in great demand.

Lack of Liquidity: A major concern

The lack of liquidity is a major concern for investors investing in these emerging markets. There have been many instances where the lack of liquidity has caused the complete market to crash and stay low for a long time.

Another BRIC in the Wall:

Many articles, such as Emerging Markets: Another “BRIC” Hits The Wall, state a hazy picture for R and I of BRIC, however the prospects of China appear to be bright. In the case of India, as the author pointed out, the country has immense growth possibilities however the flight of success has its wings being chopped by the wrath of of corruption and incompetent governments.

Tourism Sector: Sector Research Perspective

The year of 2008 saw the oil prices soaring to new highs and touching about 150 USD per barrel (about 40% higher than the average price in 2007). Speculator spread rumors that it could also touch 200 USD per barrel. However by Feb 2009, it stabilized in the region of about 45 USD per barrel. One of the sectors that was worst hit by these fluctuating prices was the tourism industry.




Domino Effect:

The economic downturn is also expected to have a severe impact on the business travel which according to the World Tourism Organisation (UNWTO) accounts for about 15% of the passenger arrivals worldwide.

The tourism sector had borne the major brunt of the aftermath of 9/11 attacks which saw even some national flag carriers such as Sabena and Swissair collapsing. In India some of the major airlines such as Kingfisher and Jet-Airways allegedly defaulted on some of their payments and even entered a mutual agreement which raised the eyebrows of the regulators responsible for protecting consumers from monopolies.

Sector Research: Analysis of the Domino Effect

Financial analysts have spent sleepless nights trying to analyze the impact of such cascading effects where the performance of one sector can cause havoc on the results of another sector. Employees of KPOs have spent sleepless nights trying to evaluate the impact of such variations in prices and agreements between organizations on the financial health of the funds administered by them.

The current crisis has shown that sector research is a non trivial task as it involves the a detailed impact analysis of financial health of one sector on the financial health of the other. Such domino effects can have hair raising consequences if not analyzed correctly.

Information Aggregation: The need of the hour

“Prediction is very difficult, especially if it's about the future.” -- Neils Bohr.

Predicting the financial health is one of the primary activities of financial analysts and financial researchers. It is common knowledge that the outcome of any research activity depends on the data set on which the research is performed. Over the years leading KPOs such as S.G Analytics, have emphasized the importance information aggregation. In the financial research, the outcome depends on the details present in the data used and the organization of the data for mining.

Web as the source of data:

Lately the web is being highly relied upon as a source of the data. Regulatory bodies such as the SEC have ensured that this process is simplified by the introduction of the Electronic Data-Gathering, Analysis, and Retrieval (EDGAR) filing system. The EDGAR data is available for search at http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp.

Complexity in Mining Raw Data:

Most of the raw data is available in the internet, however past records of many companies are not present. Bloomberg, Reuters, and Associated Press (Google), are some of the key sources of past information however fund managers and financial researchers may require the annual reports of companies.

Role of KPOs:

Mining such data, aggregating it and presenting it for future source is some of the areas where KPOs have lately increasing their presence. The information aggregation services of the KPOs usually includes sourcing, validating, normalizing and presenting the information through a database that meets requirements of the financial analysts.

A critical requirement for information aggregation is the ability to maintain live and large databases at low costs. This art is currently being mastered by the KPOs.