You knew before the tournament began that Argentina and Germany were destined for an early exit. You had Croatia down as a dark horse to make a run late into the tournament. And of course, you knew that football, as the English fans are fond of saying, is “coming home”. But what good is that to your portfolio?
Well, as it turns out, quite a bit of good actually.
Of course, you might not care in the slightest about soccer, or football, depending on which part of the world you hail from. But don’t ignore it just because you don’t care for it, because football has impacts that reach far beyond the stadiums in Russia.
“Amongst all unimportant subjects, football is by far the most important.” Pope John Paul II
Firstly, the bad news for investors: During the World Cup, trading volumes plummet making execution prices higher. This is particularly true when the market has a national team which is playing at the time. In fact, when a country’s team is playing, the number of trades made on their market fell by 45% according to a study by the European Central Bank. If a goal is scored, you can expect the trading volume to fall by a further 10%.
The South Americans are famously football mad, and their traders are no different; trading in Brazil and Argentina fell by more than 75% when their teams were playing at the 2014 World Cup. They pale in comparison to Chile however, where trading dropped by an extraordinary 99% when its team was playing matches in 2014. Perhaps it’s a blessing in disguise that Chile didn’t qualify for Russia in 2018.
However, there are some significant positives to be found from World Cup football for investors:
If you’re good at picking winning football teams, it means you’re good at picking winning economies too.
Countries that win the World Cup typically see their markets outperform global indices by an average 3.5% for the month after the tournament, according to Goldman Sachs. In fact, the nation that wins the World Cup has seen its market outperform every tournament since 1974, with a single exception (recession hit Brazil in 2002).
And while winning brings on the good times for markets, the opposite is true for losing. The same Goldman Sachs report found that seven of the previous nine teams that lost in the World Cup final underperformed the market by an average of 5.6% for the following three months. The result is immediate too; a study of 1100 matches across 39 countries found that national markets fell 0.5% immediately following any defeat at the elimination stage of the tournament.
As the United States discovered last week, your country doesn’t even have to qualify, or even be particularly interested in football for your markets to be affected. July’s US Treasury bond auction netted just $35 billion, down from $65 billion in March, which analysts are blaming on a reduced level of interest from international investors as a result of the Brazil-Mexico World Cup match which was occurring at the same time.
So unless you have a strong position in the CROBEX (Zagreb Stock Exchange), it’s probably in our best financial interest for France to win the World Cup.
