Monday, February 6, 2023
Of Risk & Quandamental

Of Risk & Quandamental


The convergence of four risk factors places global economies at the brink of an unprecedented recession. As we brace this difficult period, we call out a series of unique data sources and metrices that all investment managers, analyst and market watchers should pay close attention to. With a potentially long downturn looming, increased transparency and timeliness on corporate fundamental would serve not just as a means for gaining alpha in public markets, but in avoiding risk and management oversight in the private debt and equity space.

For a start, where are we?

  1. Covid-19 and supply-chain lockdowns – What started unfortunately in Asia, is now a global pandemic. While the situation has put entire supply chains at standstill, and drove global travel to a practical halt, it has also sparked unexpected changes in consumer behaviour as panic buying and government lock downs permeate.
  1. $20 Oil and the supply war – The Saudi-Russia standoff brings us back to 1993 (almost). At a time when demand is already weak, competitive over-production decided 2 weekends ago will likely put various energy sectors out of the picture. Offshore exploration aside, LNG, renewables, frac gas, EPCs and even water treatment players exposed to the energy sector are all in for a tough time.
  1. Corporate leverage and credit risk – Corporate debt as a % of GDP is at a historical high. As demand fades across sectors and projects get pushed back, it is only a matter of time before corporate cashflow squeeze impacts credit markets. Across China, Europe (particularly SME-driven states like Italy) and more recently in the US, talks of corporate bankruptcies are on the rise and not without reasons.
  1. Central banks’ limited headroom – The Fed’s target rate was 5.25% before the summer of ’07. The Fed went from 1.1% to 0.25% this week. The ECB had deposit rates at 3% and marginal rates at 5% in ’07. The same numbers are -0.5% and 0.25% today. In short, we cannot inflate ourselves out of this one and a recession – as and when it happens – will likely be a protracted one.

The above helps put things in perspective. As always, crisis periods are where opportunities present themselves. In this article, we have gathered a short list of data sources for both public equities and private equities participants to track key indicators ahead of official corporate or governmental disclosures, get deeper transparency into corporate performance and make fact-based decisions.

COVID-19: Daily Raw Data and Log Curves

There is a git repo of the core data maintained and published by the JHU team, which has thus far been the de-factor standard for global tracking of the Covid-19 situation. The visual dashboard can be found via this link.

When tracking case count and the effectiveness of containment, it is critically important to look at logarithmic scales instead of linear scales. Pandemics are exponential in nature and in the diagram below depicting linear scale of case count in Italy (left), exponential numbers may be misinterpreted as an uncontrolled situation. On a log curve, increases in case counts are slowing.

Source: JHU

Aviation: Weekly Capacity Data, Load Factors, Jet Fuel Prices and Freight Rates

With airlines and aircraft OEMs both crying for help from governments, the aviation and aerospace sector has been a key focus both for public market investors as well as many PE firms. As airlines cut capacity and flights, it undermines the need for fleet growth and impacts assumptions on when OEMs shift orderbooks (Airbus Data, Boeing Data) into their P&L or collect delivery payments.

Aviation Week’s subscription offers access to a database of thousands of aerospace OEMs and the aircraft programs they are exposed to, along with fleet data by airlines and lessors. OAG (Google’s trusted supplier for flight details) offers weekly refreshes on flight schedules, as well as bookings data from the global distribution networks. IndexMundi offers an easy way to track daily jet fuel prices from the US Energy Information Administration. WorldACD, with its free online dynamic charts offers insights on air-freight volume and yields that have spiked in recent days due to capacity constraints; the TAC index offers a historical view on a monthly basis.

Factory, O&G and EPC Activities: High Frequency, Quantifiable Satellite Data

First popularised by its efficacy for tracking cars parked at major US retailers and proxying retail sales ahead of time, geospatial data that combines satellite imagery or mobile phone signals with image recognition are now mainstream data sources. RS Metrics, one of the leading players in the field, along with upstart Descartes Lab offers the ability to track when Chinese manufacturing activity resumes, progress of EPC projects at yards, solar and wind farms as well as mining activities or stockpiles. Free sources, such as the USGS EarthExplore similarly offers high resolution satellite imageries with weekly / bi-weekly refreshes, and is a good starting point for more manual tracking efforts. Each of these offers various ways for assessing the extent for which the current oil rout will hit industrial players.

Source: RS Metric

Consumer spending: Daily Retail Footfall and US, China Credit Card Spend

With state-level and national-level lock downs across regions, consumer spending has taken a huge hit. Anecdotal evidence of consumer spending shifts from offline towards online eCommerce and Food Delivery options can be backed by data. Safegraph maps footfall data against brands and retailers for millions of locations in the US. Consumer Edge, another US focused data provider offers anonymised online and offline transaction data mapped against companies on a weekly basis.

On the other side of the globe, Union Pay offers data on Chinese consumer spending across all key sectors and major brands, particularly useful in the context of tracking declines in China’s luxury retail as well as Chinese overseas spend. In the UK, Barclays, which processes more than half of all credit card transactions have also been publishing monthly UK credit card spending data along key verticals for several years now. All of these are leading indicators for official statistics.

Credit: Measuring Risk for Corporates & SMEs Globally

With both macro and demand factors squeezing on corporate credit, factoring rates, bond yields and single-name CDS spreads are now important risk measures for solvency. ICE the de-facto standard for CDS trading offers CDS spread pricing data on more than 2000 of the world’s largest and most important companies. In China, WIND offers the most comprehensive database of Chinese corporate bonds, pricing and transaction data. For SMEs, factoring rates for receivables are yet another useful measure for cashflows and credit risk.


We hope this short piece would serve useful in a time of great uncertainty. Back in Apr’19 when we wrote our piece about the potential for a tech-meltdown, we feared a repeat of ‘01. As we enter Q2’20, we find ourselves facing a potential economic and financial market catastrophe – more pervasive across sectors, countries and not just stemming from tech companies in the US. We probably will not be able to inflate ourselves into recovery this time round.

With a potentially long downturn looming, increased transparency and timeliness on corporate fundamental would serve not just as a means for gaining alpha in public markets, but in avoiding risk and management oversight in the private debt and equity space. Perhaps, the needle has already burst the bubble?

At the time of writing: Industryview.org does not receive any sponsorship or fees from any of the data vendors mentioned in this article

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