Is the Middle East ready for robo-traders?

Updated 31 October 2018
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Is the Middle East ready for robo-traders?

Antonio Simeone, co-founder of Euklid, which manages savings and investments through thousands of algorithms, tells Arab News how his company is developing code that aims to understand not only the vagaries of the market but also the psychology of the trader.
Can you describe the likely application of your idea? That is to say, are you offering the technology to existing fund managers or other investment companies, or do you plan to perform that role yourself — deploying capital for clients in investments picked by algorithms?
We have already established a fund in Luxembourg and recently started raising funds from both qualified and institutional investors. The AUM (assets under management) in our fund are then invested utilizing our artificial intelligence (AI). Our AI studies the psychology of traders and recognizes the fingerprints that they leave behind, besides also being able to identify patterns and micro-patterns which can’t be perceived by the human eye. Due to our entrepreneurial spirit, we chose to set up our own structure and manage money directly instead of licensing our technology.
Part of a fund manager’s job is to predict investments that will perform well in the future, not just collate those which have done well in the past. While algorithms can help with the latter, are they as effective in looking ahead?
By using our algorithms, we aim to understand the traders’ psychology regarding a specific stock.
Our experience has shown us that each trader leaves some kind of traces and that these signs are written in the historical series.
We aren’t managers but scientists. What we do is completely guided by artificial intelligence, thus removing human discretion in the investment process.
Particularly, our AI is capable of recognizing stock fingerprints that traders leave behind and, by analyzing these and a number of other variables, predicting the changes in value of each stock in our portfolio.
We have developed around 45 algorithms that have been customized for every single asset that we trade.
Our portfolio is made of 184 equities among the most liquid on the markets, 70 percent being US equities. The algorithms are based on biocomputing, a science linked to maths, physics and biology. In order to keep the learning process efficient, an optimization process is ensured by swarm intelligence, neural networks and genetic algorithms.
We could say that we create the basic foundation and then it is up to AI to create other structures autonomously and independently.
Let me simplify this concept for you: It is as if we had thousands of traders at our disposal, who are, however, virtual. The strongest or the best are those that stay alive, and those who are not simply die.
Do you have targets in terms of projected assets under management?
Our fund launched in mid-August and therefore we don’t have a vast AUM at the moment. However, many qualified and institutional investors who have been following us for a long time are really interested in our activity and we have received many soft and hard commitments.
Our objective is … to reach the maximum amount (around $13 billion) manageable with our algorithms in three to five years. This limit is due to the fact that the algorithms trade exclusively blue chips and highly liquid stocks. However, the AI is created to
understand and predict the market’s psychology, and it would start to have issues when the AI itself starts influencing markets.
How far away are we from the point at which algorithms replace fund managers in the same way that other functions in different sectors have been made redundant by technology?
This is the reason why we do not have any management fees. We are a team made up of just a few people but our technology acts like thousands of “virtual” traders who work 24/7 for us. They are able to observe an asset from many different points of view. We are the first fund to use both AI and blockchain. But, honestly, the financial industry is rapidly evolving and getting more and more software-based; Thus this scenario is not that far from the current practice as we may wrongly think.
How can algorithms make sense of the extremely volatile and illiquid markets such as in the Arabian Gulf, where there is little raw data to process?
I happen to think about the cryptocurrency world. When we first started our algotrading activity on bitcoin, we had little and unreliable data. Only three years of historical series. Despite this, our algorithms were able to understand the trades’ psychology in a very accurate manner. But that was a very volatile and predictable scenario, and I don’t think we could achieve similar results with other assets.
The traders’ psychology was redundant and very simple; even the alleged manipulations were easily predictable. But, right after the bubble burst — or maybe right after the features were issued — the market sentiment really changed. Algorithms keep learning but this world seems less attractive and it is impossible for our algorithms to operate with more than $50 million because of the limited market capitalization.
As far as the Arab market is concerned, we are still studying it but we have many problems in searching and computing data.


Angola battles to revive oil exploration as output declines

Updated 16 November 2018
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Angola battles to revive oil exploration as output declines

  • Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline
  • Sonangol, the state oil company, is negotiating contracts for new blocks with oil majors and Angola plans to hold an auction next year

LUANDA: On Saturday, nearly two decades after securing the initial rights, Total’s CEO, Patrick Pouyanne, was in Luanda to snip the ribbon on a $16 billion oil project. It is not clear when he, or his peers, will be celebrating in Angola again.

Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline unless it can revive exploration in what was once one of the world’s most exciting offshore prospects.
Sonangol, the state oil company, is negotiating contracts for new blocks with oil majors and Angola plans to hold an auction next year, the first tender for exploration rights since 2011.
It is a race against time for a country where oil accounts for 95 percent of exports and around 70 percent of government revenues. Luck will also play a part, as it always does in exploration where finding oil can never be guaranteed.
But without new projects, output could fall to 1 million barrels per day by 2023, according to the oil ministry. That is down from 1.5 million today and nearly half of what Angola was producing a decade ago. The country risks having its OPEC quota cut and is struggling to ensure the long-term feed for its $10 billion liquid natural gas plant.
President Joao Lourenco won an August 2017 election promising an “economic miracle” in Angola, which despite its oil wealth struggles to provide basic services to a mostly impoverished population that is growing at 3 percent a year. But falling oil production means a third consecutive contraction is expected in 2018, even while annual inflation runs at 18 percent.
To turn things around, Angola has asked international oil companies to the table, offering better fiscal terms and more collaboration.
With the time from exploration to first oil on new areas anything from five to 10 years, Angola is also offering tax breaks to encourage companies to link existing marginal discoveries to operating production platforms.
There are signs the measures are working, though some oil experts wonder at what cost for the southwest African country.
“The level of exploration activity in Angola is beginning to change,” Sonangol’s chairman, Carlos Saturnino, said at Saturday’s inauguration.
He expects between five and 10 new concessions to be signed next year.
Exxon, he said, had shown interest in some blocks in southern Angola’s unexplored Namib basin, while advanced discussions are being held with BP, Equinor and ENI for the rights to the ultra-deep offshore blocks 46 and 47.
BP and ENI declined to comment. Equinor and Exxon did not immediately respond to a request for comment.
Total, which operates 40 percent of Angola’s production, plans to drill its first exploration well in four years. Beneath 3,630m of water on block 48, it will be one of the world’s deepest.
“We hope it will be a play-opener for the ultra-deep in Angola,” said Andre Goffart, senior vice president for development. “We are seeing a new wave of exploration in Angola.”
These signs of fresh exploration come after a period of near-paralysis due to a lack of drilling success, a slump in oil prices and a deteriorating relationship between Sonangol and the oil majors.
Angola’s offshore reserves are expensive to explore and develop, making it a hard sell for shareholders when oil is at $40. The number of rigs operating off Angola’s shores dropped from 18 in early 2014 to just two in 2017, according to oil services company Baker Hughes.
The steep drop in prices from 2014 came just as companies were smarting from the failure to discover Brazil-like oil
reservoirs beneath a layer of salt on the African side of the Atlantic. The search for the “Angolan pre-salt” resulted in some of the most expensive dry wells ever drilled and sapped exploration appetite.
Critics say the situation was exacerbated by Isabel dos Santos, the former president’s daughter and previous chair of Sonangol, under whose leadership new projects ground to a halt. Dos Santos denies allegations of mismanagement, saying she helped turn around an almost bankrupt company.
“There are few places in the world right now where the oil majors are in as good a negotiating position as here,” said one international oil executive in Luanda on condition of anonymity.
Some local experts fear the deals Angola is striking are too beneficial for the companies, although details remain private.
“If Angola gives away too much it could create problems further down the line,” said Jose Oliveira, an oil specialist at the Catholic University in Luanda.
But the country has little choice given its imminent production decline and a lack of money or expertise to lead the drilling campaigns itself.