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Group 3- World Cup
- 1. World Cup to Investment World Group #3: Solomon Tsao, Jessleen Dhaliwal, Tamir Gantunur, Ling Yee Wong, Jefferson Ye, Richard Liu
- 2. Overview ● What the World Cup is ● Effects of World Cup ● Impact on Brazil’s Financial Market ● Impact on Investors ● Future Expectations for World Cup 2018 ● Investment Strategies
- 3. What is FIFA World Cup? ● Fédération Internationale de Football Association ● Biggest international tournament for football (soccer) ● Every 4 years
- 4. FIFA World Cup 2014 ● Brazil was the hosting country ● June 12 – July 13, 2014 (32 days) ● 32 teams ● Germany won the tournament defeating Argentina
- 5. How does it affect us? Alex Edmans: “The efficient markets hypothesis argues that stock prices depend only on fundamentals. That would be true if traders were robots. But, traders are human beings and they’re affected by emotions.”
- 6. Alex Edmans’ Studies ● Average losses in “soccer-crazy” countries had a decline of 0.6% in the market index ● 25 out of 37 defeats = market underperformance
- 7. The Effect on Brazil’s Economy ● The food and beverage, lodging, car rental, TV broadcasting and advertising sectors will see the most benefits. ● Flow of tourists will boost regional retail sales and benefit the food and beverage industry. ● 70% of the total investment was directed to infrastructure projects ● Example: Lodging
- 9. World Cup’s Effect on Different Sectors in Brazil
- 10. Brazil Index (ETF) Jun 13, 2014: the closing price is $49.64 Brazil had a decline of 0.4% in the market index Jul 8, 2014: the closing price is $47.74
- 11. Impact on Financial Market ● Brazil Market o Defeat = lower expectations for Brazil’s market o Less likely to buy into the market ● US Market o Defeat = Americans invest cautiously in the short term o Investing in Brazil is an irreversible trend but this negative effect from World Cup made American invest more carefully in short term.
- 12. Impact on Investors ● Investing in a foreign company is a way to diversify o Diversification: a wide variety of investments; will yield higher returns and pose lower risks ● 70% of the total investment was directed to infrastructure projects o expected to inject $90 billion into the country’s economy by 2019 o Political instability in Brazil ● Buy shares of US multinationals o Coca-Cola earns bulk of money from foreign countries o Return from stock changes due to currency values between US and that foreign country
- 13. Future Expectations for 2018 World Cup ● Companies like: Adidas, Coca Cola, Budweiser, Hyundai, and Visa will continue to partner with FIFA in 2015 Womens’ World Cup and 2018 World Cup in Russia ● Russia is set to invest about 20 billion into its new infrastructure for the 2018 World Cup ● Unlike Brazil, the Russian people welcome the World Cup ● Russia needed the World Cup to modernize its’ cities infrastructure. (11 cities in Russia will host the 2018 World Cup) ● Russian ETFs will be cheap ● Any gain will be corrected within a few days
- 14. Gainers and losers in Brazil 2014 Increased business opportunities for major sponsor/partner companies: ● Consumer goods sector (BUD: +25.96%, KO: +3.26%, NKE: +22.37%) ● Service sector (MCD: -1.28%, ARCO: -13.06%) ● Financials sector (V: +15.94%) ● Construction machinery sector (CAT: +28.63%)
- 15. Investment Strategies ● More careful on investing in Russia o US sanctions on Russia over Ukraine causing difficulties in banking sector in Russia ● Active/Passive investment in the US market: o Long-term gains on sponsor companies o Watchlist: PEP, FOX, FB, TWTR o Hold/Short-Selling participant nations’ ETFs
- 16. Investment Strategies ● Active/Passive investment in foreign markets: o Frankfurt and Tokyo Stock Exchange, etc o Diversification
- 17. Conclusion ● Stock market tied to human emotions ● Defeat may lead to negative impact in short- run ● Long-term o infrastructures o political instability
- 18. Question?
Editor's Notes
- A professor at London Business School and the Wharton School of the University of Pennsylvania assessed the impact of major sporting events on market behavior for years. Analysis of this World Cup has confirmed that defeats have generally resulted in declines the day after that are greater than, or counter, to the performance of the wider global market. People may not think World Cup affect the market but according to Alex Edmans…
- Now I will be talking about the effects the World Cup had on Brazil’s Economy. The World Cup provided a lot of benefits to Brazil’s economy, such as food and beverage, lodging, car rental, TV broadcasting and advertising products like Coca Cola. One of the reason for the boost in these sectors is due to the influx of tourists. During this event, most Brazilian companies will produce short-lived sales increase that might not affect the annual earning but still help stimulate economic activities.
- This graph was provided by the Brazilian Ministry of Tourism, estimates that the World Cup will attract 600,000 international tourists to Brazil. That would contribute to nearly 10% increase in leisure travel.
- In this slide, it shows a table with different sectors in Brazil that are affected by the World Cup. In the table, it has different categories: sector, benefit (meaning how they rated from either low, medium, high or mixed), comments (explaining what affect the World Cup have on that sector) and companies affected.
- In Economics, we assume people are rational. However in a real market, people are emotional. Facing on the humiliating defeat, people would think: our economic development is slow, we don’t have a good economic market right now, and we don’t have a good soccer team. It is a really negative attitude and people would have a lower expectations for Brazil’s economic growth. Based on that, people would like to reduce stock holdings in short term. For US, Brazil, as an investment market, is more important. It is an irreversible trend; however, due to the negative effect from the World Cup. In short term, American Investor need to be more careful to invest in Brazil financial market and actually need more current asset to deal with unpredictable risk.
- international stocks rep. added opportunity diversification: different shares in varying sectors multinational: assets are in company other than home company infrastructure: roads, bridges long-term benefits for Brazilian nationals and future tourists foreign investors are profiting Coca-Cola launched “The World’s Cup” a marketing program designed to connect World Cup viewers universally through the slogan “One World, One Game” foreign investors profit off of publicly-traded companies connected to some infrastructure projects for the World Cup
- Would need to earn 10 billion to breakeven. Rio earned a staggering 4 billion.
- Companies use World Cup as a brand marketing tool, which leads to further high brand recognition and increased revenue. BUD - Anheuser-Busch InBev had the exclusive right to sell beer at the stadiums. NKE - Nike, producer of sports apparel and equipment ARCO - Arcos Dorados Holding Inc CAT was the major machinery supplier for the Brazil utilities companies. Competitors: JCB (London), Komatsu (Tokyo)
- More skeptical on investing in Russia - US sanctions on Russia over Ukraine affair causing difficulties in Russian banking sector. Russian Ruble is down vs USD, diminishes the investment return from Russia. (Passive) Looking for long-term gains in US companies with multinational business, Ex. BUD, KO, NKE, V Watchlist: PEP (acquired 66% of WimmBillDann, Russia’s leading food and beverage brand, in 2010), FOX (won the right to broadcast games till 2022) FB, TWTR (Increase Social Media activities) (Active) Short-term gains on appreciation, short-sale on depreciation on host nations’s businesses, Ex. ADR: ABEV (AmBev), ARCO (ArcosDoradosHoldingInc - McDonald’s franchise carrier) in Brazil. (Active) Participating nations’ ETFs (short-sale when the nation lose and the ETF falls, according to Alex Edman’s study result): Brazilian (BRXX-InfrastructureIndexFund +11% last three-months, -4% YTD; Emerging Market ETF- Russia included) CAT Competitors: Komatsu (Tokyo SE) ADS (Frankfurt SE)