The World Cup has a striking effect on financial markets.
Expect trading volumes and activity to drop, as investors turn their attention to the world’s most popular sports event.
Senior investment strategists at DBS Private Bank and the Bank of Singapore, said while the performance of the stocks are difficult to predict, markets can expect somewhat a dull period during this time.
This is nothing new, however.
A study by the European Central Bank of 15 international stock exchanges during the 2010 World Cup found that the number of trades made when a particular national team was playing decreased by 45%, and trading volumes were 55% lower, DBS’s Jason Low told Citywire Asia.
Even during matches that do not involve the particular national team, trading numbers dipped by 24%, highlighted James Cheo from the Bank of Singapore, in an investment note.
‘In one particular example, the number of trades on Chile’s stock exchange fell by 83% when the team was playing. In fact, Latin American teams’ stock exchanges are among the top markets affected when their national team played,’ Cheo wrote.
According to DBS Group Research, the Straits Times Index fell by an average of 8.6% in the two months between end-April and end-June during the past six World Cup tournaments.
What’s more, in 2014, trading value at the Singapore Exchange (SGX) fell 29% in the two weeks after the World Cup started.
‘Historically, volatility has also declined in most of the past few World Cup periods,’ Low said.
‘The short-term positive sentiment could support World Cup-related consumer names in the near-term. But investors must beware some of these positive sentiment may have already been priced in.
‘In fact, while global food and beverages players may benefit from a rise in sales during the tournament, this rise in volumes may not be very significant since the competition lasts only a month,’ he added.
This week SGX announced that the food and beverages segment performed comparatively well in May and June to-date.
The two listed supermarket plays - Dairy Farm International and Sheng Siong Group - averaged 2.9% gains since the end of April, taking its year-to-date total return to 12.3%.
Meanwhile, the five largest capitalised restaurant stocks - BreadTalk, Kimly, Jumbo Group, Old Chang Kee and Japan Food Holdings - averaged 1.7% gains between 30 April and 18 June.
The investment strategy during this period, according to Cheo, is to build a portfolio that optimises the benefits of diversification.
‘Just like the interplay of free-flowing football between defence and attack, there is a need to combine traditional and non-traditional assets, risky stocks and defensive bonds, and allocating across regions is crucial in making portfolios profitable in good times and to preserving gains during downturns,’ he noted.