How World Cup Victory Affects Stock Market Performance

A World Cup win certainly feels good for sports fans. In 2018 French celebrations were so extensive they even prompted the creation of a World Cup victory song. However, historic economic data also suggests that this positive sentiment extends beyond the consumer to investors as well.

Goldman Sachs research shows that a FIFA World Cup winner can expect to outperform the stock market by around 3.5% on average in the months after the event. 92% of world cup winning countries have gone on to experience an average of a 4% overperformance in their national stock market in the month after the victory. The only exception to this rule was Brazil in 2002, which was plagued with economic crisis and recession at the time. By and large, football victory spells stock market success, at least in the short term. Even in anomalous instances runners-up to the final have experienced outperformance, most notably Argentina which had a booming 33% outperformance in 1990.

So, should investors and analysts be following football matches alongside their candlestick charts? The answer is a resounding yes, but the reality is not as positive as that initial bump to economic performance might suggest. Alongside the trend of outperformance for World Cup winning countries, we also see another side. Just like possession in football, market confidence is easy come, easy go. As such, the outperformance period for FIFA champion nations rarely exceeds a single quarter. Historically as the hype dies down, so does performance. In fact, stock market performance in the year after the World Cup for the winners is seldom strong, on average underperforming by 4% compared to the rest of the market. The largest of these drops was in Germany in 1990 which underperformed by 18.5% in the following year.

This means that residents of victorious nations should probably mitigate their excitement, at least from a stock market perspective. However, awareness of this trend can obviously present an opportunity for savvy traders to ride both sides of the World Cup winner bull to bear cycle. Brazil were the bookies’ favourites this year at the start of the tournament, which would make the Bovespa Index an attractive instrument to trade in the short term. This index is comprised of a basket of Brazilian assets across sectors including stocks such as Americanas and 3R Petroleum.

But as we all know, anything can happen in 90 minutes. If Germany were to win for example, the DAX (which includes BMW, Deutsche Bank, and Siemens) would presumably be affected. Equally, if Spain is victorious, the IBEX (which includes Santander and Telefonica) is likely to move. The same goes for England and the FTSE 100 (Rolls Royce, Schroders, Sainsbury). An increasing number of traders are integrating their World Cup predictions into their trading portfolios in this manner.