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Market Scramble: AI-driven trades spook Tokyo market

Mere human investors struggle to read bots' next moves

TOKYO -- The bouts of turmoil in the Japanese stock market caused by U.S. President Donald Trump's pronouncements -- including his latest accusation that Japan is manipulating exchange rates -- seem to be providing an opportunity for artificially intelligent trading programs to make their mark.

Toyota Motor shares slid 2.3% right after Wednesday's opening, and many market pros attributed the selloff to the work of trading bots.

"I wouldn't be surprised if an AI [program] that reacts to Trump remarks made a move," said Masamitsu Ohki at Fivestar Asset Management.

Consider the "Trump and Dump Bot," a program by U.S. startup T3 that automatically analyzes the president's tweets and bets against companies likely to see their shares fall as a result of his broadsides. It is said to have generated a big gain last month, after it promptly shorted Toyota when Trump criticized the Japanese automaker's Mexican production plans.

AI-aided investing is making itself felt in the Tokyo market in other ways. Among its major practitioners is Renaissance Technologies, a U.S. quantitative fund that has been active in Japanese shares since post-U.S. election Trump rally. Disclosures Tuesday show that it owns a 5.5% stake in V Technology -- a maker of display panel production equipment -- and a 5.34% interest in video game developer Mynet.

Renaissance Technologies does not seem to be paying attention to Trump's remarks. Instead its automated trading program apparently scours share price movements, gradually building positions in stocks on an upswing, then selling them at a sufficient profit. Trades are executed automatically without any human judgments. Based on its disclosures, the fund's Japanese shareholdings have market values 5% to 25% higher than the prices it paid.

AI-driven trades are making individual investors nervous. V Technology and Mynet shares had a roller-coaster session Wednesday, as investors apparently feared that Renaissance might sell. Mynet rose 5% in the morning, only to see a flood of sell orders and close the day down 14%.

Investors struggle to read the next moves of emotionless trading programs. Renaissance gives the market little information to go on. So when Mynet shares slipped a bit, "speculation that at a large investor had sold took hold, prompting panicked individuals to sell," said senior market analyst Masayuki Doshida of Rakuten Securities.

AI investing looks likely to spread. Nomura Securities on Jan. 18 started publishing an index tracking 70 AI-related stocks picked by AI technology. So far, it has outperformed the Tokyo Stock Exchange's broad Topix, and a listed investment product linked to the new index is expected to debut soon. Mitsubishi UFJ Kokusai Asset Management has also launched an investment trust that harnesses AI.

The question is to what extent AI investing will take root.

"Humans can still beat AI on many points, such as predicting medium- to long-term earnings based on corporate analysis," said a senior investment manager at Sompo Japan Nipponkoa Asset Management. But to keep up with the technology's evolution, human investors will need to do some more deep learning of their own.

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