Will Russian stocks jump because the World Cup is being played there?

By Kim Iskyan

On June 14, the FIFA World Cup kicked off.

The World Cup is the world's biggest single sporting event… by far.

To get an idea of just how huge it is, consider this: The Super Bowl, which is the largest sporting event in the U.S., attracted around 114 million viewers in its record-setting year of 2015.

The 2014 FIFA World Cup Final, which saw Argentina face Germany, drew about 1 billion viewers from around the world. And that was for just one game of 64.

Given the huge masses of humanity that are focused on the World Cup - it's enticing to examine the market implications of the tournament.

In the past we've looked at the relationship between big events like the Super Bowl and Olympics on stock markets. And sometimes there are correlations… but it's important to remember that correlations between the outcomes of (say) sporting events, and markets, don't imply causality. Just because two things happen doesn't mean that one thing causes the other. This is particularly true because the sample size of most events is relatively small.

So today, let's take a look at the performance of the markets of World Cup hosts - and what it could mean for this year's host, Russia…

Host country markets before the whistle

Before one of these events, there's a lot of excitement and anticipation. There's also an impact on the local economy, as the country prepares to host floods of tourists - after investing potentially huge sums of money in infrastructure like stadiums and transportation. So how does that country's stock market usually fare?

The table below shows the market returns for the host of the World Cup the year of the tournament (starting in January and up until kickoff) going back 25 years, compared to the returns of the MSCI All Country World Index (ACWI), a global stock market index.

(Of course, 25 years isn't a lot of data… and there are lots of factors that can affect stock prices that have nothing to do with football.)

On average, the host country market has outperformed the index. The average return for the host country during the year of the World Cup was 14.9 percent, compared to 2 percent for the index.

In total, six host countries out of seven (Japan and South Korea co-hosted the World Cup in 2002) outperformed the index. For example, in 1998, France hosted the World Cup. In the lead up to the event, French shares outperformed the MSCI ACWI with a 40.7 percent return versus just 13.6 percent.

So far, Russia (the host of this year's event) has also outperformed the index - although not by a big margin. Russian shares are up around 3 percent… compared to 1.6 percent for the MSCI ACWI index.

So what about during the event?

As you can see in the following table, on average, the host countries only marginally outperformed the MSCI ACWI index from the day before kickoff through the final whistle (returning a loss of 0.1 percent compared to a loss of 0.7 percent for the index).

Some host countries outperformed better than others… For example, Germany returned 6.7 percent during this time, compared to 4 percent for the index. And South Africa returned 3 percent, compared to 2.1 percent.

Meanwhile, the stock markets of U.S. and France underperformed the index during their tournaments.

So the excitement of the Word Cup while it's taking place doesn't seem to have a significant impact on the host country. And it doesn't last after the event is over. In our research, we found on average, the markets of host countries underperformed (returning around 0 percent) the MSCI ACWI index (which returned 1.8 percent) after the final whistle through the rest of the year.

So if a host country's market is going to see a bump from the World Cup, it'll likely be before the Cup even begins.

And if you think about it, it makes sense. The actual economic impact of a World Cup comes from investment in infrastructure - building stadiums and roads and trains to support the brief but intense upsurge in tourism - in a host country. That's the real tangible effect. That's why you'll see the biggest outperformance in the host country leading up to the tournament.

Of course, there will be less impact on a large economy, or one that already has the infrastructure, like when the U.S. hosted in 1994 (it had a 0.4 percent loss leading up to the tournament).

So while Russia has likely seen most of its gains from hosting, it could be worth keeping an eye on the host of the next World Cup in 2022… Qatar (a country we've told you about before).

 

Kim Iskyan
Kim Iskyan is the publisher of Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Kim has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets. He's been quoted in the Economist, The New York Times, the Wall Street Journal, Barron's, and Bloomberg, and has appeared on Fox Business News, China Central Television, and Bloomberg TV, and has written commentary for the Wall Street Journal, Slate.com, Salon, TheStreet.com, breakingviews.com, and other publications. For more of his insights, Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free.

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