Sports Spin Economic Tale for Goldman Sachs: Cutting Research

The sports industry provides a snapshot of forces propelling the global economy as emerging markets increasingly play host to big events such as the Olympics.

Declaring sports “the world’s favorite growth industry,” Goldman Sachs Group Inc.’s Hugo Scott-Gall said athletics can “mirror the global economy and the changing shape of it” as developing economies such as China wield greater power.

With Beijing having hosted the 2008 Olympics, the torch will pass to Rio de Janeiro in 2016 after the London Olympics end this month. Russia and South Korea will be the locations for the next two Winter Olympics. Russia will hold the World Cup in 2018 and Qatar in 2022, after South Africa did so in 2010. India put on its first Formula 1 motor race in 2011 and more than a third of Grand Prix events take place in emerging economies.

Emerging nations stand to benefit more from stadium and transport-infrastructure building, as well as foreign investment and higher sponsorship, as international companies look to increase their presence, Scott-Gall, a London-based equity analyst, said in a July 26 report.

Companies that may benefit include Hong Kong-based sports retailer Belle International Holdings Inc. (1880) and Russian construction company OAO Mostotrest, according to the report.

At the same time, richer economies have less need to play host because they already have such amenities as transport systems. Given expenditure on such events tends to exceed initial budgets, he noted that Rome has withdrawn its bid for the 2020 Olympics. Cash-strapped Madrid remains a contender.

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Robots may be to blame for the weakness in the U.S. labor market, according to hedge fund SLJ Macro Partners LLP.

SLJ founders Stephen Jen and Fatih Yilmaz said in their July 30 report that technological advances may be progressing at a rate too fast for workers to adjust or to retrain, prompting their replacement.

“The high spending on capital expenditures (i.e., technology) but low hiring in the U.S. in the past two years is consistent with this view that companies are replacing certain types of labor with technology,” London-based Jen and Yilmaz said.

The workers at most risk of this development are those in mid-skilled jobs, given robots are unlikely to be designed for working as restaurant staff or advanced enough to be doctors, the report said, citing the research of Massachusetts Institute of Technology economist David Autor.

While the U.S. and China suffer from the rise of the robot, substituting technology for jobs may be good for societies with aging labor forces such as Japan, SLJ said.

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The economies of the Philippines, Malaysia and Thailand need to grow faster than in the past if they are to avoid being stuck in an income trap.

That’s the conclusion of economists at HSBC Holdings Plc, who studied what happens when growth rates slow so much as an economy matures that the country’s per-capita income fails to enjoy any meaningful rise.

The Philippines, for example, is now in the lower-middle- income bracket. To move to the higher-middle-income rank, its income per capita would need to expand 4.5 percent through 2020 and 5.1 percent beyond, said economists Frederic Neumann and Sanchita Mukherjee. Still, over the past decade it has only gained 3.1 percent on average, they said.

Elsewhere in Asia, China may fare better in its push to rise beyond upper-middle-income status. To move to the high- income tax bracket, average annual per capita income growth would need to be 4.7 percent until 2020 and 5.3 percent in the next decade. The past 10 years witnessed average income growth of 9.9 percent, suggesting it may be possible, said HSBC.

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Texas border towns such as El Paso are now reaping the rewards of their close proximity to Mexico after years of pain following 1994’s introduction of the North American Free Trade Agreement, a Federal Reserve Bank of Dallas report showed.

“El Paso and other border cities are no longer at the edge of the U.S., but at strategic locations in an emerging North American market,” economists Robert Gilmer and Roberto Cornado said in the study, which was published this month.

Their research found that every year from 2001 to 2010, six sectors contributed 6.5 percentage points to household earnings growth, with the bulk of new jobs in finance, professional services and management. The increase, mirrored by a convergence in per-capita income toward the U.S. average, is supported by continued integration of U.S. and Mexican industrial production and by higher competitiveness south of the border.

The uplift marks a reversal from the loss of El Paso’s apparel industry following NAFTA’s implementation, when it became the biggest recipient of compensation and worker- retraining funds.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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