The World Cup in Brazil was widely feted as the event that would provide added impetus to an already growing economy.
In fact, prior to the start of the tournament, Vicente Neto, head of the government’s Embratur tourism board claimed the Cup had brought an extra $15bn to the Brazilian economy, saying that “Regarding the human legacy, the numbers are extraordinary: the creation of one million jobs in the country due to this great event, one million jobs or 15 percent of all the jobs created this year in Brazil“.
How long will it last?
It’s arguable how much actual long-term benefit such an injection of investment will bring, although improved consumer sentiment does go a long way towards getting economies moving — the difference between spending and saving can make a significant difference to economic growth that’s measured at a few percent a year.
And had Brazil gone on to win the cup, there’s ample evidence that the country would have enjoyed knock-on economic benefits. A survey by Goldman Sachs found that “there is a clear pattern of outperformance by the winning team in the weeks after the World Cup final. On average, the victor outperforms the global market by 3.5% in the first month”.
The study went on to discover that in every case since 1974 that could be checked (with one exception), the winning country had gone on to match its success on the pitch with a strong stock market run. So keep an eye on German stocks, at least in the short term.
What about losers?
But the one exception, perhaps ironically, was Brazil in 2002 — although the team won the coveted trophy, the country was in recession at the time.
So what will happen to Brazilian shares? Well, the omens are not good — there are some hints that losing teams in the knockout stages of international competitions go on to suffer a downturn in their home stock markets. Examining the day-after results from Euro 2012, Dutch bank ING uncovered evidence to support earlier studies on a larger scale that found a knockout winner’s stock market rallied the day after, while the loser’s dipped.
And after last night’s drubbing at the hands of Germany, the São Paulo Bovespa index is down a third of a percent today.
Will there be any lasting effect on Brazil’s economic growth?
Look for the long term
Considering the relatively minor meaning of the whole World Cup in the wider scheme of things, I can’t see any significant effect either way. But having seen all those sad faces last night, I think I’d look for somewhere else for short-term investment punts right now.
