What can equity markets tell us about the outcome of the World Cup? The answer is, absolutely nothing. But let’s take a look at the year-to-date performance of the major equity benchmarks in each of the participants’ home countries for the sake of amusement and see if there are any worthwhile trends that we can scrape out of the data.
Here we have the year-to-date returns through the first week of June for the major equity benchmarks of 24 of the 32 participating nations. The eight that we’ve left out—Algeria, Cameroon, Honduras, Ivory Coast, North Korea, Paraguay, Slovenia, and Uruguay—have been omitted due to the fact that Morningstar Direct does not have returns data for their equity markets, or they simply do not have full-fledged stock markets.
Host Continent Fairs Well
As you can see, if we were to make the unrealistic assumption that participant nations’ performance in the coming weeks would be solely a factor of their domestic equity benchmarks year-to-date performances, then the host continent would fare extremely well—snagging 3 of the top 10 spots, with Nigeria winning Africa’s first-ever World Cup title. What are the odds of such an outcome? To use the word “long” would be an understatement. Ladbrokes presently quotes Nigeria as being a 125-to-1 shot to win it all.
Will Sovereign Woes Lead to Poor Performance on the Pitch?
While Spain might be the current favourite to win it all, the country ranks second-to-last in our equities league. However, we doubt that a 20% unemployment rate and widely protested austerity measures will be weighing on the minds of La Furia Roja as they take the pitch against the Swiss on June 16.
The one data point that shows our silly experiment may have a modicum of predictive power is Greece. The country’s bruised and battered equity market—which is at the bottom of our equity league table—compliments the 200-to-1 odds of winning the tournament offered by Ladbrokes.
For those who would like a (slightly) more serious discussion of the ties between economics and football, Goldman Sachs has published their quadrennial analysis of the World Cup. It is an impressively comprehensive bit of research, even including discussions of the state of football and the economy in each participating nation. The level of insight varies from country to country, but apparently we need to add Italian football to the list of areas where one should never bet against Goldman Sachs.
