Investing
Zoe Team
4 min read
The World Cup impacts global economies and local markets through tourism and infrastructure.
Short-term market spikes related to events often lack long-term fundamental support.
Diversification remains more important than chasing event-driven investment trends.
Large-scale events can cause temporary fluctuations in specific sectors like travel and hospitality, but they rarely alter long-term economic trends.
Investing based on emotional or temporary events is generally discouraged; long-term fundamentals and asset allocation should always drive your decisions.
Maintain a disciplined, diversified strategy and avoid the urge to react impulsively to temporary news cycles or sports-related market chatter.
The World Cup is in full swing and it has not disappointed! From big upsets to missed penalties and hat tricks, it’s stacking up to be one of the best yet. Besides the fact that the World Cup is an incredibly huge sports event watched by l iterally half the world’s population, some see it as an attractive investment opportunity. We thought we’d dig a little deeper and see if this really is the case. There are 2 main themes here - economic impact and investment opportunity.
The economic impact of a World Cup on a host nation has been discussed at length, and it’s a rather contentious issue. This article, for instance, suggests that the Russian ruble is likely to appreciate due to the $31 billion predicted economic impact from hosting the World Cup this year. However, on closer inspection, we found some contradictory evidence from past host nations.
Previous hosts have disputed Russia’s economic impact predictions “given the difficulty of separating the World Cup from other economic factors.” Dmitry Kulikov, an economic expert, believes that “the expected effect on economic growth will be equivalent to a statistical error”. He states that any economic changes or benefits will be purely short-term in nature, and although the new stadiums and highways will last after the tournament, the World Cup effect will “dissipate almost immediately after the final match”.
Are these claims valid? We took a look backward at the last 2 World Cups, hosted in South Africa (2010) and Brazil (2014) to see what we could dig up.
In 2010, South Africa hosted the World Cup and s pent an estimated $4.1 billion to modernize and construct their stadiums and transportation infrastructure. All this construction generated over 22,000 jobs, great! But they were all temporary contract jobs, which therefore disappeared at the end of the project. Similarly, since the World Cup ended, all the extra hotels and stadiums that were built sit mostly idle as South Africa has not been able to maintain the level of tourism that it experienced during the tournament. Besides not being used, the construction of these state-of-the-art stadiums is not sustainable as ticket revenues alone were not able to make up for the costs of yearly maintenance. These costs are falling on local, potentially cash-strapped municipalities that don’t need a state-of-the-art stadium.
Brazil hosted the 2014 World Cup, and sadly, it did not seem to help their economic situation either. Brazil, although the world leader in soccer, lags far behind when it comes to economic development and upliftment of its people. The big spending to get ready for the event was very much resented by its people, as we saw in the riots and marches against the games. But, these riots were responded to with promises of economic growth and increased GDP following the event.
When the tournament finally began, over 1 million tourists visited Brazil, which far exceeded expectations. But “as quickly as the tourists came, they also left” and no long-term economic effects were felt. The same went for infrastructure projects like roads, airports, stadiums and public transport facilities, many of which are now sitting vacant or underused - a stark reminder of the overspending that could have been used to uplift the 20% of the population that lives in poverty.
Ok, so the above data is focused on economic impact, and we can all agree that neither South Africa nor Brazil benefited much on that side. But how did stocks of these host nations perform as a result of the tournament? To be more precise, how did they perform before the announcement that they would host vs. after the announcement?
Research has shown that despite the fact that on average there is a short positive economic impact as a result of the event, host country stock markets did not see even a short-term boost on average. So not much to work with there either.
In many of our TV appearances and blogs (here, here and here), we advocate NOT reacting to short-term market changes. We suggest that as an investor, you should make sure that your long-term investment goals are not affected by emotional short-term decisions. It is also one of the top reasons for working with a financial advisor- to make sure that they are there for you during stressful times and are able to keep your reactions in check i.e. prevent you from making any rash decisions.
Interestingly enough, Goldman Sachs found that since 1974, all of the World Cup winners (except one) have outperformed in the month after the final. Cool right? But then again… if you could pick the World Cup winner before the tournament started, you might be clairvoyant!
So with all of this in mind, should the World Cup be something that you consider when making investment decisions? We’ll leave that decision up to you.
Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.
