Alt+0 to show this section, Tab to navigate forward, Shift+Tab key to navigate backward, Enter to access link, and Esc to reset

Menu

05 Jun 2014

Trading the World Cup

Ben Laidler

by Ben Laidler

Head of Research, Americas, HSBC

Trading the World Cup

Brazilian equities rallied strongly in the weeks before the competition

How do football World Cups typically affect the stock market and economy of the host nation? Although holding the competition has little discernible impact on GDP growth, the impact on shares is clear and persistent. Local equities outperform in the lead-up to the start of the competition, take a dip after the football is over, but then often have a second leg-up later.

Although holding the competition has little discernible impact on GDP growth, the impact on shares is clear and persistent

This year’s World Cup in Brazil will be the 20th since the series started in 1930. Don’t take this as a forecast, but in the 10 World Cups since 1966 for which we have data, local stocks outperformed by 11 per cent on average in the six months before the tournament (the United States in 1994 was the exception – possibly reflecting low US interest in soccer). Shares then underperformed by 5 per cent in the following six months.

Our figures show how the host countries’ stock markets have behaved in the six months before and after each tournament and how that performance compares with the MSCI World Index.

What can explain this consistent stock market behaviour around World Cups? There is little evidence of any positive economic impact, whether from tourism, jobs or total economic growth.

Our analysis of how growth behaved in countries hosting a World Cup shows that in the four quarters before the competition, real GDP growth in the host nations averaged 2.4 per cent, which was 0.3 percentage points less than world GDP growth at the time. In the year after the World Cup, there is some evidence of a slowdown: GDP growth fell to an average of 1.7 per cent, or 0.3 percentage points less than the world average.

So why does the stock market react in such a predictably positive way in anticipation? The most likely answer is sentiment.

Brazilian equities did rally strongly in the weeks before the competition – but that’s not a forecast for the future. The consensus expects the country’s GDP growth to pick up to 2.4 per cent in the second quarter of 2014 – after only 1.2 per cent in the first three months – before slowing to 1.4 per cent in the second half of the year. HSBC’s base case is for significantly lower growth in 2015.

But the World Cup has become inextricably linked to Brazilian politics given its timing so close to the 5 October presidential election and either the home team’s performance on the pitch or social protests outside could impact the vote.

This was first published on 23 May 2014.
Disclaimer

Related content

Another step down for Latin America (Getty Images/Glowimages)

Another step down for Latin America

11 Mar 2014

The hope that Latin America had reached the bottom of its falling growth…

No quick fixes in Latin America

23 Apr 2014

In the first quarter of 2014 we reduced our expectations for growth in…