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Send  Print  Share  RSS  Twitter  08 Jun 2010

The World Cup effect investors beware

 
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Johannesburg, June 8 (I-Net Bridge) Investing around the World Cup is going to be a difficult business, with cold logic and fundamental decision- making likely to take a back seat during the course of the event.
The World Cup kicks off on Friday and so investors should start preparing for a bumpy rise - researchers have found that global stock markets have a big chance of going down during the month the World Cup is held. After all, global bourses rose only three times in the past 14 World Cup tournaments.
It is felt that the World Cup this time will, at least, divert attention away from bourses that are already depressed by economic uncertainties.
But it must also be kept in mind there are opportunities in this climate as some shares can be picked up at bargains after the event, while certain companies are set to benefit from the tournament.
China Daily reports that Tsingtao Brewery Co Ltd shares gained 1.98% on Monday bucking the downtrend in the overall market on investors` expectations that beer sales will be significantly boosted by soccer fans around the world.
Henan Rebecca Hair Products Co Ltd, the world`s largest wig maker, has also benefited directly from the game as 25 percent of its products are sold to Africa and orders have been increasing steadily in recent months, the company said.
And some behaviour has been found to be directly related to the performance or more importantly non-performance - of a favoured team.
A study carried out by academics from the Universities of Bangor, Leeds and Newcastle examined whether, on average, returns from the FTSE 100 index changed significantly the day after 290 England international football games between 1984 and 2009.
They found that an early England exit in South Africa could have negative business effects on the alcohol, media, leisure and sportswear industries
It was found the largest gains and falls in the stock market happened after tournament games such as the World Cup. Slightly lower share price gains and losses were noticed after friendly and qualifying matches.
The effect of international sporting results on stock markets was well documented and often attributed to the psychological effects of the result, said researchers.
Professor Robert Hudson, from Newcastle University Business School, said: "Stockbrokers, like everyone else, can be carried away in the depression associated with an England loss at the World Cup.``
Dr John Ashton, from Bangor University Business School, said: "If England are eliminated from the World Cup early, it may be a good day to look for bargains on the stock market".
But it`s not just share prices to watch out for - as regards to the World Cup soccer games, the stress of the fans of a losing country leads to extreme phenomena, like an increase in heart attack rates and changes in workers` productivity, according to MoneyScence.
Guy Kaplanski and Haim Levy write in MoneyScience that with increasing stress investors become more risk averse, and are therefore inclined to sell stocks. Their study shows that alongside the local effect, the World Cup sporting event is also associated with a long lasting global effect, i.e. with substantial low returns in the U.S. stock market.
Investigating eleven World Cup events during a period of 41 years, reveals that the average return on the U.S. market over the World Cup`s global effect period is -6.25% (-46.6% annually) relative to +1.27% (10.6% annually), corresponding to all-days average returns for the same period length.
Investors would do well to make sure they understand the effects of the tournament on their money and that there could well be some nice buying opportunities after the event. An analyst from Haitong Securities in China goes so far as to say he has cut his stock market holdings to 20% until after the matches end. Maybe a bit extreme, but then again, China is not likely to be
holding the coveted gold trophy aloft on July 11.
By Evan Pickworth
I-Net Bridge.
Copyright 2010 I-Net Bridge. All rights reserved.

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