Fund managers are using AI to predict the outcome of UK election

The stakes are high so the latest tech is being used to try to mitigate the risk

Fund managers are using AI to predict the outcome of UK election
Steve Randall

Opinion polls offer a guide, rather than a firm steer on the direction of travel; and when billions of dollars are at risk, fund managers aren’t taking any chances.

The UK’s Brexit vote in 2016 has continued to leave an uncertain future, not just for the UK but for global money markets, and with the country now just over a week away from an election, fund managers are doing all they can to call it correctly.

And that means using the latest technology to analyze the mood of voters in the hope that funds can be positioned for the most likely outcome.

The polls show that the Conservatives will win with a majority; that’s the point of the election for the Tories who have failed to get their deal with the EU passed amid a weak parliamentary majority and internal splits. However, Labour has been gathering support in recent days.

But the polls are only a snapshot. And fund managers are utilizing artificial intelligence to scan social media, press reports, web traffic, and even betting odds, to try to determine the outcome.

For managers, it marks a departure from a heavier reliance on opinion polls.

“In the past opinion polls accounted for 85% of your input, now maybe it’s 30%,” Stephen Jen, macro hedge fund manager at London-based Eurizon SLJ told Reuters. “The world has become so complicated that polls, the standard metrics of the past, don’t capture the picture anymore.”

Reuters’ research found that most of two dozen large investors said they have used AI to help understand how voters may act.

However, even the most complicated algorithms cannot be completely certain of the decisions that humans will ultimately make.

The pound could plummet

In a related report, investors are being warned that the UK currency could slump against the US dollar if the election returns a hung parliament.

Nigel Green, CEO of financial advisory firm deVere Group says that a hung parliament is likely to lead to a second Brexit referendum and another vote on Scottish Independence, something demanded by the SNP who may hold the balance of power in a split vote.

“Sterling fell 0.2% to $1.29 on Monday with the odds on a hung parliament being delivered next week narrowed to as low as 7/4 - down from 9/4 last week,” he said. “I think we can expect the pound to fall to $1.20 in the event of another hung parliament. Should a Conservative majority be delivered, I believe the pound will reach $1.35.”

The pound is currently worth U$1.30 based on early trading Tuesday.

If there is a hung parliament, Mr Green says there will be an extended period of uncertainty, perhaps into 2021.

“Uncertainty is something financial markets loathe and this is why the pound has dipped on the news of Labour closing in on the Conservatives ahead of this crucial Brexit election,” he said.