World Cup Syndrome

The FIFA World Cup is just 24 days away and the world will be watching to see who the eventual champion will be. I’m rooting for Netherlands to win the tournament.

During the World Cup, traders and investors are usually lured away from the stock market and turn their attention to the World Cup. There has been a pattern seen in the stock market during World Cup months. The stock market usually turns bearish during this period and this is called the “World Cup Syndrome”. One reason may be due to the terrorism concerns during World Cup and this year, the World Cup is to take place in South Africa and many will be wary. Another reason may be due to the odd hours of the matches and investors may be weary to actually turn their attention to the stock market. Some games take place at 2.30am (SG time) and it will be 2.30pm in New York and it’s right smack in the middle of the trading hours in the US. Lastly, punters might as well bet on the soccer games rather than bet on the stock market as World Cup comes along only once every 4 years.

There are some evidences to back the ‘World Cup Syndrome’. In five out of the seven tournaments since 1982, the STI started to consolidate one to two months before the event. The STI typically reached a high in the April to May period, falling an average of 11.4 per cent by the end of the World Cup. The volume during the month of the tournament fell around 23 per cent compared to the prior three-month average.

The only two exceptions were in 1986 and 1990. The year 1986 was a clear exception as the Singapore economy was just coming out of its 1985 to 1986 recession and investors mopped up oversold shares. The 1986 situation was similar to that of the second quarter of last year – not even the World Cup and the Olympics combined would have stopped the market from moving up. Index movement was generally flat during the 1990 World Cup tournament following a May rally, but that was only because February to April were ‘down months’ and stocks were already oversold.

The STI’s historical performance in the first month after the end of the World Cup tournament has also been lacklustre. In five out of the seven tournaments since 1982, the index declined by an average of 3 per cent in the month following the end of the World Cup tournament.

As of today’s closing, the STI is down 6.1% from the high of 3019 on 14th April 2010. Will it go lower due to the World Cup syndrome and also due to the current debt crisis in Europe? Personally, I’m hoping that the market will go lower to scoop up shares on the cheap. We shall all wait and see what actually unfolds…. and lastly, GO ORANJE!

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