Print

Mail

wiki links

Soccer set to affect global markets

Brazilian Mercantile & Futures Exchange stockworkers are pictured in Sao Paulo last month, where the Brazilian markets were shaken and nervous due a the possible increase of interest rates in the US. PHOTO: EPA

Latin America's fixation with World Cup soccer over the next month is likely to hit volumes in regional financial markets, but opinions differ on whether it will cool the volatility that has rocked emerging markets.

With Brazil markets closing early on game days, Argentina's stock market bringing in a giant TV screen for matches investors' attention could drift unless global markets tremble, analysts said.

"Basically we see lower volumes on game days, especially when a country's [team] is playing but also throughout the tournament," said Clyde Wardle, HSBC emerging markets analyst.

"It's likely to translate into lower volatility but we could see some quiet spikes, that is you could see large movement but without a large amount of market noise," he said.

Of the 32 teams in the tournament that opened on Friday in Germany, six are from Latin America.

These include Brazil, Mexico and Argentina -- the region's biggest economies -- which have seen wide swings in the prices of their stocks, bonds and currencies recently.

The Brazilian real in the past month staged its biggest one-day gain and biggest one-day fall in four years, each more than 4 percent moves, as emerging markets globally were roiled by rising interest rates in the US, Europe and Asia.

The question is whether the distraction of the World Cup will calm the financial turbulence.

Brazil appears to be the only country which closes its markets early for World Cup games on trading days, scheduled so far for tomorrow and Thursday June 22.

Argentina also has matches during trading sessions, including this Friday and Wednesday June 21.

The World Bank, in a special World Cup feature posted with a link on its Web site, intoned, "Studies suggest that success or failure in football [or soccer] may affect a country's economy."

"I have no doubts at all that trading volume will dry out when Brazil and Argentina play, but I don't think this is likely to impact the market trend," said emerging market analyst Ricardo Amorim of West LB.

"What has driven volatility up in Latin American markets are equity markets globally and they're likely to remain in the driver's seat in upcoming weeks," he said. "Thus I don't think the World Cup will matter much in that sense."

Analysts note an increasing correlation between US and European stock markets and Latin American emerging market assets, as some investors tend to sell emerging markets as a group in times of risk aversion.

The World Cup could make buyers for bonds scarce in Latin America, notes IDEAglobal's emerging markets analyst Enrique Alvarez.

"All types of participation from south of the [US] border could dry up," he wrote, "as has been the norm in the market for the last three World Cups."

Meanwhile, new research, shows that equity prices fall by almost half of 1 percent when a team is knocked out of the World Cup.

After surveying more than 1,000 World Cup games, academics Alex Edmans, Diego Garcia and Oyvind Norli found that winning a match has little impact on share prices back home but losing causes an attack of the doldrums among investors.

The more important the match, the larger the negative effect the next day, according to the research, which is about to be published in the journal Behavioral Finance. On average, share prices drop by 0.1 percent when a team loses a World Cup qualifier, but 0.38 percent after a group game, and 0.49 percent after a knockout match.
This story has been viewed 1362 times.