As AI stock-picking grows in popularity, reigning in the robots might be a challenge
As China, like many other countries, has eased monetary policy during COVID-19, markets have become awash with liquidity. This has dovetailed with rapid advances in technology, to produce the trend of robo-advisors in the stock space, something that is beginning to attract the attention of traditional financial institutions. And it is a force to be reckoned with: According to MarketWatch, theoretical research suggests that AI investment strategies can beat the market average by as much as 40 percent on an annualized basis.
Wan Jun, partner at Han Kun Law Offices has been closely following this merging of artificial intelligence and artificial intelligence and its rapid growth in popularity in China. “Many comprehensive financial platforms have launched fund portfolio products based on intelligent investment. There are also a number of companies that focus on providing intelligent investment and research system services that are developing rapidly," he tells ALB.
Although AI investing in China is fairly recent, it is rapidly picking up momentum. According to Reuters, China Asset Management Co (ChinaAMC) recently announced a partnership with Toronto-based AI company Boosted.ai. Meanwhile, Zheshang Fund Management Co has also launched a fund that uses robots to predict the market outlook and select stocks.
However, despite the promise of better returns, Wan still has some concerns because “China's regulation in this area is still at a relatively preliminary stage.”
Some early movers are already reaping the benefits. For instance, it was reported by Reuters that Zheshang Fund's first AI-powered fund, Zheshang Intelligent Industry Preferred Hybrid Fund, has gained 68.34 percent since its launch in September 2019, according to its Q1 report, compared with a 21.64 percent gain in its benchmark, which is a combination of stock and bond indexes.
But what happens if you lose money? Reuters notes that some regulators have already expressed concerns that AI stock-picking may run into regulatory challenges.
"From a regulatory perspective, you need to go through a lot of compliance procedures. You need to write reports on your decision making. Some AI-powered models are like black boxes, and unexplainable," one fintech practitioner says.
Wan believes that some companies are looking to move from pure "AI stock-picking" to more comprehensive "smart investing,” which reduces the occurrence of compliance risks.
He points out that in the early stage, China only had "securities investment and consulting business qualification" on the regulatory level, but there was no clear stipulation on "fund investment and consulting business qualification.” In October 2019, the China Securities Regulatory Commission (CSRC) issued a document to officially open the independent public fund investment business pilot. With the recent continuous expansion of pilot institutions, more than 50 institutions have obtained relevant qualifications in the past two years.
On this basis, in April 2020, CSRC issued relevant regulations covering the full spectrum for fund investment and consulting business qualifications again.
Therefore, the clearer division of roles and the emphasis on qualifications in the financial industry mean that institutions should first consider about whether they are qualified when making innovations in financial products, especially those related to the AI investment funds.
But according to Wan's observation, it is still common for non-licensed institutions to bring fund products to the market.
Speaking of the future trend, Wan holds a positive view, he further predicts that after the implementation of the above measures, the supervision of China's intelligent investment business will be improved, and a new round of rapid development will ensue.
Considering that the intelligent investment business will become a major trend in the future, Wan suggests that fund companies should better use compliance to bring more opportunities for business innovation.
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