The joys of the World Cup are plenty.

Those in England can beam with pride as Wags go shopping, chairs are thrown through restaurant windows, and much of the country’s media succumb to collective hysteria and mouth-foaming jingoism.

But like most parties, life might be less enjoyable for the hosts.

Not only have South Africa been drawn in a group they will struggle to win a game in, but the country is unlikely to see any long term economic benefits from going to all that trouble.

Historically, while the World Cup boosts retail sales and tourism, the event has negligible impact on a host nation’s GDP. In fact, there is even some evidence to show that GDP growth is negatively affected: economic growth in host countries since 1966 slowed to an average of 1.5 per cent, or 0.3 percentage points less than the world average, according to HSBC.

One would intuitively expect this is bad news for a host country’s stock market. Wrong.

Hosts’ stock markets have actually outperformed the MSCI World index almost every time since England’s win in 1966.

As HSBC strategist Garry Evans observes:

In World Cups dating back to 1966, the host nation outperformed in the first half of the year on seven out of the eight occasions for which we have data – the only exception was the US in 1994 (perhaps explicable by the lack of interest there).

Back in 2001, when we were doing Japan strategy, we pointed out the remarkably consistent behaviour of the stock market in the country hosting the World Cup: it almost invariably performs very strongly in the six months before the tournament starts and then falls sharply over the following few months.

In 2002 the stock markets of Japan and South Korea (the joint hosts) outperformed the world by 10 per cent and 24 per cent respectively in the six months prior to the World Cup.

Post tournament they then both underperform by 9 per cent in the six months.

The Germans, however, went one better.

When Germany hosted in 2006 its stock market outperformed the rest of the world by 9 per cent before the first ball was kicked, and then bucked the trend by continuing to outperform after the final.

This entry was posted by Miles Johnson on Friday, December 18th, 2009 at 10:16 and is filed under Capital markets. Tagged with germany, hsbc, south africa, world c, world cup. Edit this entry.