How much of a part does cold, hard, rational evaluation play in determining the values of stock markets — and how much is down to feel-good confidence?
We might hope it’s mainly the former, and we might expect that something as emotional as winning the World Cup would have little or no effect — but a Goldman Sachs report suggests we’d be wrong.
A 3.5% boost
What the investment bank found is that the winning country typically goes on to see its stock market outperform those of its peers, at least in the short term. In fact, the report tells us 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“.
With the FTSE 100 (FTSEINDICES: ^FTSE) standing at 6,755 as I write these words, a 3.5% hike would take it to 6,991 — just nine points short of that psychologically important (but actually quite meaningless) level of 7,000.
But today the FTSE is at its lowest point for a month and trading volumes have been down a bit — has England’s lacklustre start already had a bearish effect on the markets? If we look at the slightly longer term, a 3.5% rise from recent average levels would easily take London’s biggest index over 7,000.
What does history say?
What’s the evidence to suggest the FTSE would respond so well to an England victory? Well, Goldman Sachs’ data showed that in every case since 1974 that they could check (with one exception), the winning country has gone on to match its success on the pitch with a strong stock market run. The exception? Brazil in 2002, when the country was in a serious recession — even in the home of Pele, economics can sometimes defeat even the most entrenched traditions of football!
But what if, horror of horrors, England don’t actually win? Well, it seems that stock markets follow the losers downwards, too, and most losing finalists over the same period have seen their stock markets go on to fall.
Any knockout will do
But even if a team doesn’t make it to the final, a loss in any of the knockout stages can also cause a bearish reaction from investors back home. 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.
If you’re a football follower and an investor, how should you try to benefit? Well, over the short term you could perhaps buy shares in ITV, Diageo and Domino’s Pizza and hope the team at least makes it into the knockout stages.
Or just go long term
But better, you could simply invest for the long term — Goldman Sachs found that the effect on the winner didn’t last long, and the outperformance is typically over within three months.
