Canadian Investment Review

Why the World Cup might still be a boon for Brazil

Written by Caroline Cakebread on Wednesday, June 11th, 2014 at 11:17 am

cristo_redentor_brazilThe price tag for Brazil’s World Cup hit US$11.5 billion, making it the most expensive in history. And it still hasn’t finished preparing: buildings remain unfinished, reminding the population that the meter is clearly still running.

According to this Wall Street Journal article (subscription required), even the most passionate of soccer fans in Brazil are losing faith in the event. Just 48% of Brazilians say hosting the World Cup was a good idea—that’s down from 79% in 2008.

White elephants, broken promises, and a deep disconnect between cost and economic reality—and there’s still the 2016 Olympics to go….

But while preparing for the June 12 start date has been a hard slog for Brazil, there could be at least one side benefit—if, of course, the team wins. And that is probably going to happen, according to Goldman Sachs, which is wading into the sports prediction arena in an effort to profile the upside potential for Brazilian stocks. Apparently, the winning country’s stock market does really well in the weeks following the game.

Here’s Goldman’s prediction at a glance: Brazil is three times more likely to win the event this year than is Argentina (the next most likely team). Goldman analysts even get specific about the score: Brazil will beat Argentina 3–1 in the final (they’ll first make short work of Germany and Spain in the semifinals).

All this boils down to Brazil having a 48.5% probability of winning the World Cup, versus a lowly 14.1% chance for Argentina and 11.4% chance for Germany.

So why is Goldman Sachs even giving those predictions? Because of the potential for a big win to boost Brazil’s stock market—historically, when it comes to the World Cup, the winning country’s stock market outperforms global markets by an average of 3.5% in the month after.

It’s one thing Brazilians can take comfort in, given the pain of preparation: Brazil’s Ibovespa index has already fallen 7% in the last year. The boost from a World Cup win could be part of possible turnaround for the country’s stocks. Signs are already there: Brazil exchange-traded funds (ETFs) jumped on news that Brazil’s unpopular president, Dilma Rousseff, might be on the way out. ETFs could be a quick and liquid way to get in on what could be a solid short-term play on Brazil (and embrace your inner soccer fan).

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