Why a German stock market rally is linked to its World Cup win

European stock markets are doing pretty well all round, but the DAX could be experiencing a 'World Cup bounce', according to Goldman Sachs.

by Rachel Savage
Last Updated: 15 Jul 2014

Everyone likes a feel-good factor, and investors are no exception. Germany’s stock market, the DAX, is up a little more than 1% today as the Vaterland celebrated its World Cup triumph over the debt-laden Argentinians.

Source: Yahoo Finance

European stock markets are generally looking on the bright side today, and it could be a case of fat fingers for German traders feeling a little worse for wear after going heavy on the beers last night, but World Cup winners have a history of happy stock markets, according to Goldman Sachs.

In the first month after a World Cup triumph, the victorious country’s stock market outperforms world markets by an average of 3.5%, the bank reckons. All the winning nations experienced a bounce apart from Brazil in 2002, which was in the grip of a deep recession and currency crisis.

Euphoria doesn’t last, though, and once investors have got their heads back in the game (or, indeed, out of it) it tends to underperform by 4% in the year following the win, according to the analysis, which goes back to 1974. Irrational, beer-fuelled exuberance doesn’t last forever, then.

In contrast, runners-up underperform compared to global markets by an average of 1.4% in the month after a loss and 5.6% in the next three months. That excludes Argentina in 1990, which outperformed world markets by 33%, after a two-year collapse in the stock market and the peso.

History probably won’t repeat itself, though - Argentina’s Merval index is already down 0.2% today after Messi didn’t manage to work his magic last night. It had risen almost 65% since the start of 2014, as investors hunted down returns from riskier assets. Given the country is currently trying to negotiate its way out of defaulting on its debt, that can’t last forever, especially now with all those sad football fans.


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