Under the spotlight: The relationship between sporting moments and share prices
Just like a star athlete needs to keep his mind on the game, so too must a financial trader approach the ‘playing field’ with a cool head. Both disciplines require studious preparation, and tread a fine line between success and failure. But elite sport and financial trading share yet another similarity. Major sporting events, like the Olympic Games and World Cups, can coincide with movements across indices, currencies, stocks, and more.
Could a momentous victory for one of the home nations lead to movements in the markets? Here’s a look at how sporting moments affect share prices.
Victories on the field and on the stock market
The jubilation of a sought-after cup victory can affect traders as well as players and fans. A major sporting event will often put the host country’s stock exchange in the spotlight. Travis Robson, Head of Premium Client Management at IG, says the FIFA World Cup in 2010 in South Africa saw a major drive in building and property stocks. Market Analyst Shaun Murison agrees, saying: ‘A sporting event such as a World Cup or the Olympic Games often necessitates infrastructure development to support the occasion. Construction is a major source of employment and certainly lines the broader consumer’s pocket, as well as adding a few temporary points to domestic GDP.’
The tourism industry is another obvious beneficiary, with an influx of foreign inflows accompanying global travel as fans look to support their respective teams. Higher drives are also seen in alcohol stocks. The Ashes series is a good example of how triumphs on the field are often linked with upturns in consumer confidence. Since 1985, the six-month period following an Ashes series has seen the winning country’s stock market increase by an average of almost 10%. While Ashes defeats have shown little effect on stock markets, its victories have driven some notable movements. The series linked with the biggest stock market gains were England’s win in 1987 and Australia’s in 1995, with the FTSE and ASX rising by 34% and 18% respectively.
Similarly, South Africa’s victory in the 2007 Rugby World Cup saw a 7% increase in the Rand against the Pound, as well as a 4.3% increase against the Dollar, while key findings from the 2012 Ryder Cup showed an 3.2% growth in the Spanish IBEX as well a 2.4% increase in the Euro against the Dollar.
Brand recognition and shares
Sponsoring a sporting event can deliver huge boosts to a brand. Murison says: ‘For the most part, a major sporting event is an exercise in brand awareness, which should hopefully translate into revenue down the line.’ During the 2015 Rugby World Cup, some of the major South African sponsors that enjoyed the most airtime included SABMiller, Vodacom, Tsogo Sun and Barclays Africa/Absa. But how much does a brand’s share price feel the effect? In 2007, SABMiller saw a 7.5% increase in share prices during the Rugby World Cup tournament, while the 2003 Rugby World Cup boosted share prices for Diageo (the makers of Guinness) by 9.8%. Similarly, Scotland’s ten biggest companies enjoyed a 7.5% rise in share prices thanks to Wimbledon in 2013. The tennis tournament also boosted sales in AG Barr (producers of Im-Bru) by 5.8% that summer.
While share prices are affected over the course of a tournament, singular sporting moments have shown to considerably spike brand share too. Considering that the 2000 Olympic 400 metres final drew a staggering crowd of 112 524 spectators (the biggest crowd attendance ever at an Olympic event), it should come as no surprise that Nike, the creators of Cathy Freeman’s iconic body suit, saw a 7.5% rise in share prices in the ten days following her victory.
Shares to watch
Away from the traditional benefactors of a major sporting tournament, like brewers, hoteliers or builders, transport companies such as Uber derive benefit from major sporting events too. Murison says: ‘Transport is a necessity for those traveling abroad and Uber has become a global leader in the space, eroding the business of meter taxis.’ Merchandising is another, says Murison: ‘Retailers with licenses to sell the relevant Rugby merchandise are also likely to see a short term boost in revenue.’ Travis Robson adds that any company with a link (or dual links) to the host country’s stock exchange are worth keeping an eye on during a major sporting event too, like retailers, restaurants, healthcare and sports betting businesses.
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Photo credit: AP Photo/Felipe Dana