Here's why stock investors should be excited by the Olympics

Reuters/Bruno Kelly

The XXXI Olympiad, known as Rio 2016 or the 2016 Summer Olympic games, is now days away from starting.

The athletes are primed, as too are Olympic enthusiasts, preparing to endure two weeks of sleep deprivation in order to cheer their countrymen and women towards gold.

There’s another group that should be getting excited about the imminent arrival of the Olympics: stock market investors.

According to new research produced by ANZ, looking back over the periods of past games, stocks tend to rally both during and after the Olympics, especially in the US.

“Starting from the Los Angeles 1984 games, we looked at how various asset prices have fared when the games are being held, and a year after the Olympic flame has been extinguished,” wrote Khoon Goh, head of Asia research at the bank.

“For the duration of the games, the S&P 500 has gained in all bar one (the Sydney games) for an average rise of 2.7%.”

The table below, supplied by ANZ, shows the performance of global stock markets, along with the US dollar and the host nation’s currency, over the course of past Olympiads.

Reuters/Bruno Kelly

While there is no discernible relationship between the Olympics and currencies, there certainly is for stocks. In all bar one instance the S&P 500 has finished higher, with global stocks finishing up on all bar two occasions.

Perhaps emboldening investors to cheer even harder when the games are on, the news is equally bullish when looking at the performance of stocks in the year following an Olympics.

Outside of Sydney 2000 and Beijing 2008, periods that were tumultuous for financial markets following the September 11 terrorist attacks/tech bubble bursting and Global Financial Crisis, stocks have pushed higher on every single occasion.

Where there is a consistent outperformance is a year out from the end of the games, when the equity market returns of the host nation not only posts strong gains (again with the exception of Sydney 2000), but also tends to outperform the global benchmark, even when adjusted for the currency, says Goh.

“The average gain is 24.4% (20% in USD terms) for the host equity market, compared to 9.2% for the MSCI World Index.

“This suggests there are some positive financial market impacts from hosting the event after all,” he adds.

Here’s a similar table to the one above, only looking at the performance of financial assets in the year following an Olympics.

Reuters/Bruno Kelly

While there are obvious exceptions to the rule, with past performance not indicative of future returns, if you’re humming and hawing whether to buy stocks at these levels, the Olympics could well provide your answer.

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