A winning bid to host the Olympic Games does not necessarily translate into success for a country's equity market, an analysis by Old Mutual Global Investors shows.
Rio de Janeiro won its Olympics bid on Oct. 2, 2009. From that date to the opening ceremony on Aug. 5, the local Bovespa index lost 47.4% in U.S. dollar terms — over that same period, the Brazilian real fell by 44% vs. the U.S. dollar. And the analysis said the Bovespa's performance relative to the MSCI World in dollar terms was -136.5%.
However, Australia's S&P/ASX 200 index gained 49.6% between winning its bid on Sept. 23, 1993, and the opening ceremony on Sept. 15, 2000. The S&P/ASX 200's performance relative to the MSCI World index was -101.1%.
In an equities commentary Friday, Ian Heslop, head of global equities at Old Mutual Global Investors, analyzed the performance of host stock markets for the period between winning the bid and Olympic opening ceremony.
“Put another way, hindsight shows us that basing an investment decision in whole or in part on a hypothesis about the likely economic and market impact of the Rio Games would have been deeply flawed,” said Mr. Heslop. He said a number of factors will have contributed to Brazil's weak performance, including political turmoil and a slump in demand for the country's key commodity exports.
Further evidence of there being no discernible pattern can be found in the figures relating to the 2008 Beijing and 2012 London Olympic Games. Between the bid win July 7, 2005, and London's opening ceremony Aug. 12, 2012, the FTSE 100 gained 32.67%. But it underperformed relative to the MSCI World by 2.17%.
And the Shanghai Composite produced 61.94% between the winning bid July 13, 2001, and Aug. 8, 2008's opening ceremony. Relative to the MSCI World index, that marked a 77.42% outperformance.
And while there is no evidence that hosting an Olympics is linked to stock market performance, the Greek equity market outperformed the MSCI World index in the period between Athens' winning bid and the opening ceremony in 2004. However, the huge cost of Greece's opening ceremony “is now widely considered to have played an important contributory role in the country's present economic crisis,” Mr. Heslop wrote.