Sell Losing World Cup Nations as Stocks Suffer Disappointment, Study Says
England's goalkeeper Robert Green reacts after missing a goal during their Group C first round 2010 World Cup football match at Royal Bafokeng stadium in Rustenburg. Photographer: Hoang Dinh Nam/AFP/Getty Images
Siphiwe Tshabalala of South Africa celebrates scoring the first goal during the 2010 World Cup match between South Africa and Mexico in Johannesburg. Photographer: Christof Koepsel/Getty Images
Traders and money managers may want to watch the World Cup, which began in South Africa last week, for more than just the soccer.
Stock indexes in nations kicked out of major tournaments lag behind their average returns during trading the day after the loss, according to a 2007 Journal of Finance study by Diego Garcia, a professor of finance at the University of North Carolina. Euphoria over victories might encourage investors in winning countries to buy shares, said Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc. in Cincinnati.
“People are going to feel better and they’ll spend more and enjoy things more,” said Wirtz, who oversees $18 billion. “That helps the economy and means higher stocks, higher profits.”
Stocks around the world could use the help. More than $6 trillion has been erased from equities since April 15 amid concern that Europe’s debt crisis and China’s curbs on lending will slow the global economic recovery. Benchmark indexes for nations such as Greece, Spain and Italy have fallen more than 15 percent.
Jules Rimet
Bearish bets may prove most successful given that 31 out of the 32 nations competing for the Jules Rimet trophy will fall short of the championship. A loss in the second phase of the World Cup, when teams are ejected when they lose a game, causes a nation’s stock index to perform 0.49 percentage points worse than average the day after the match, said Garcia, who co-wrote the paper with Alex Edmans, currently at the Wharton School at the University of Pennsylvania, and Oyvind Norli of the Norwegian School of Management. The study showed no effect from wins.
“For countries where soccer is very important, the point effect we find is even bigger,” Garcia said.
Investors may want to consider a bearish bet against South Africa’s stocks regardless of how the host nation’s team fares, according to Jon Compton, managing director at Bedlam Asset Management in London. That’s because the additional attention the country is enjoying will fade after the final whistle is blown July 11, while investment will dry up, he said.
South Africa spent almost 30 billion rand ($3.9 billion) building stadiums and upgrading transport and telecoms infrastructure to prepare for the opening match on June 11, which the host team tied 1-1 with Mexico.
Drink Beer
“The pattern with all major global events is that the markets in the host country are lower six months later,” said Compton, who helps manage $700 million. “One way to play this would be to short the market of every country holding a big sporting event, two weeks after it’s over.”
Compton said he expects the shares of online-gaming companies and brewers to rise as people around the world place bets on the matches, then drink beer as they watch.
The Standard & Poor’s 500 Index declines an average of 1.7 percent during the event, according to Bespoke Investment Group LLC in Harrison, New York, which looked at performance during World Cups going back to the first competition in 1930. Over the three months after the event, the S&P 500 falls an average of 0.4 percent.
That compares with a 1.3 percent decline during the tournament for the MSCI World Index of stocks in 24 developed nations, which then decreases an average of 4.3 percent over the next three months, Bespoke found, using data back to 1970.
3-D Matches
Jason Weisberg, director of institutional trading at Seaport Securities in New York, says the World Cup should provide a boost to companies that are affiliated with the event including Nike Inc., the largest maker of athletic shoes, and Walt Disney Co., the world’s biggest media company. Beaverton, Oregon-based Nike is using the tournament in advertising campaigns, while Disney, based in Burbank, California, owns ESPN, the channel that’s screening the matches in 3-D.
The S&P 500 has retreated 10 percent since its high this year on April 23 as soaring borrowing costs in indebted European countries such as Greece and Portugal rattled markets and China took steps to cool its economy. If nothing else, the competition may provide some relief after the financial turmoil of recent weeks, Weisberg said.
“It’s going to be a welcome distraction from all the negative headlines,” he said.
To contact the reporters on this story: Joanna Ossinger in New York at jossinger@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.
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