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World Cup Effects on Stock Markets

Plus500 | Thursday 24 November 2022

After long-awaited four years, the FIFA World Cup finally kicked off last Sunday with the hosting country’s team, Qatar, losing two goals against Ecuador. It is no secret that the World Cup has been one of the biggest, most viewed, and eagerly anticipated events in the football world for over nine decades, but it might surprise some to hear that this grandiose occasion transcends the sports realm and can have a major impact on the economy and the market as well. Here’s how the Qatari World Cup might be bringing football and trading together: 


What Is the World Cup?

Deemed one of the world's premier football events since 1930, the World Cup is a 32-nations sporting event that happens every four years and is organized by FIFA. It is also one of the most viewed sporting events, and as such, it generates high returns and revenue that usually come from marketing, TV, and licensing rights.

How Does the World Cup Affect the Economy?

While this event is obviously of utmost importance to football fanatics, its prowess is also evident in the economic arena as well. According to analysts, by the end of the year, Qatar’s GDP might hike by 4.1% due to this year’s World Cup which might add $20 billion to the nation’s economy. And while in the last World Cup in Russia, FIFA spent  $1.8 billion in expenses, this year’s World Cup spending is still astoundingly hefty and stands at about $1.7 billion. Additionally, Qatar spent around $200 billion on the World Cup and built seven new stadiums from scratch. 

In light of this, it should not be surprising to learn that the World Cup can affect the economy and impact a plethora of industries from tourism to transportation, especially for the host country as many sports enthusiasts travel to watch their favorite teams play live. 

Nonetheless, while the effects cannot be immediately seen as the Qatari World Cup is still in its infancy, according to data released by FIFA in 2010, for example, following the 2006 German World Cup, Germany’s GDP was increased by 0.3%, higher employment rates were seen during the tournament and in the first 8 months preceding it, and $120 Million in direct tax income was generated which only serves to demonstrate its economic influence. (Source:Forbes)

What Does the World Cup Mean for Traders?

While the World Cup can evidently be profitable to many financial sectors or industries, generally speaking, its effect on the stock market, however, can differ. Many market analysts note that during this period, a slowdown in trading materializes. This is usually due to the fact that stock market trading hours overlap with football matches and also because during match days investors pay less attention to the stock market. Consequently, relevant market news and events may not be reflected in market prices at the same rate it would normally be, and lower liquidity may develop in the market.

Additionally, research conducted by the European Central Bank (ECB) and the Central Bank of Netherlands (DNB), indicated that in the 2010 and 2014 tournaments trading volumes fell by 55% and 48% respectively. But that’s not all, according to studies, stock market profits are significantly lower the day after a country loses the World Cup, and research did not find a positive effect on the stock markets of countries that won the competition. Moreover, data suggest that when a goal is scored, trading activity also dips by about 5%. In other words, it seems that when a goal is scored it’s not as gleeful to the stock market.  On the flip side, other analysts seem to counteract this data and claim that due to Black Friday and the upcoming Christmas season, the 2022 World Cup might not affect the markets negatively. 

World Cup-Related Stocks 

The FIFA World Cup has many sponsorships and, as such, many of those sponsoring brands’ stocks could shift in various directions. Among some of the most notable sponsorships are Nike, Addidas, and Puma who are sponsoring the majority of the national teams’ jerseys and kits. That being said, the direct impact of this sponsorship is yet to be seen. Nevertheless, since the start of the 2022 World Cup and as of the time of the writing Nike (NKE), which is the largest kit sponsor, and Adidas (ADS.DE) the 2nd largest rose by 2.7% and 0.2% respectively, while Puma (PUM.DE), the 3rd largest kit sponsor fell by 0.8%. But whether it is indeed due to the tournament or not is unclear.  Additional FIFA-related stocks include the FIFA partners like Coca-Cola (KO), Visa (V), and McDonald’s (MCD). One might keep an eye on these stocks to see how they react throughout the month.

Tech Stocks: What's in it for them?

Despite the potentially dreary outlook mentioned above, this data cannot be taken as a rule of thumb as the stock market is known for its volatility and things can ebb and flow. In addition, analysts also note that the World Cup might have a kinder effect on the Tech sector, which has been suffering over the past year due to higher interest rates and inflation. Hence, they predict a boost for tech stocks due to the high usage of screens and apps. But this all comes down to how fans engage with the matches. 

For example, research notes that in the previous World Cups, football fans viewed the matches, read articles, and engaged in online discussions on apps like Facebook (META) and Instagram which boosted relevant stocks. 

Accordingly, due to the growing digital connectivity of viewers, brands are usually keen to leverage the World Cup hype through digital marketing strategies which could potentially give media and tech-related stocks a much-needed gain. Analysts predict the same for food delivery companies as demands might grow during matches.

If their expectations hold true, companies like Delivery Hero (DHER.DE), who have had trouble over the past year and fell by 59% may be able to rebound. Whether these forecasts will hold is too early to determine and as of the time of the writing and ever since the kickoff of the World Cup, the German online food service fell by 4.8% while Meta rose by 2.2%. 

On the other hand, other analysts and market watchers note that while the matches might distract some traders and investors, they believe that the effects might not be as drastic as one might expect. Some even claim that with the approach of Black Friday and Christmas, retail stocks might not get as hurt as some would envision. They even posit that eCommerce giants,  Alibaba (BABA), Amazon (AMZN), and eBay (EBAY), could thrive along with tech stocks like Meta and Alphabet (GOOG).

Since there is still about a month left until the World Cup ends, it is still unclear whether all of these forecasts will be realized. With a cocktail of factors ranging from inflation to the war in Ukraine and rate hikes still coming into play, one will have to wait and see how this will affect the stock market. For now, one could only enjoy this premier sporting event and hope for the best.

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