Brazil Stocks Spike on World Cup Fever

Brazil Stocks Spike on World Cup
The World Cup’s official soccer ball, by Adidas.

There’s more at stake for countries during the World Cup than just bragging rights.

Market watchers pointed to a “World Cup effect” in the financial markets, where a nation’s performance in the international soccer tournament can impact its stock market.

Traditionally, being eliminated from the event can lead to a 40-basis point drop in the country’s next-day return, said Macquarie analyst Laurent Vasilescu.

“When it comes to smaller markets and the national teams of Italy and Spain, the market reacts to how the team performs. When the team was supposed to win but they lose, the next day the market goes down,” Vasilescu said, noting that the theory also applies to South American teams such as Chile and Bolivia. 

A winning streak, on the other hand, can send equity markets soaring.

According to analysts at Goldman Sachs, the country that wins the World Cup usually experiences a short-term boost in its stock market. On average, its shares outperform the global average by 3.5 percent in the month after the win, the experts said.

“Looking at history, there is a clear pattern of outperformance by the winning team in the weeks after the World Cup final,” said Peter Oppenheimer, Goldman Sachs chief global equity strategist and head of Europe macro research. 

“All the winners since 1974 — for which we have stock market data — have outperformed in the post-final month, with only one exception: Brazil in 2002,” he said, noting that the outlier was impacted by economic pressures.

Brazil, which is experiencing a market boost due to the influx of tourists, has seen its shares bolstered by improved sentiment in the region.

Over the past week, the average share in Brazil has risen 6 percent, with the broader Bovespa index up 3.2 percent for the week and up 23 percent since the beginning of March.

“Being both the host nation and winning is the ultimate goal,” Oppenheimer said.

Driven by the strong correlation between soccer outcomes and mood or sentiment, analysts said the market decline after soccer losses is stronger in small stocks and in more important games.

“Interestingly, the U.S. stock market, when you analyze data dating back to 1930, for the past 19 World Cups the market has declined on average 2 percent during the one-month event,” Vasilescu said.