CAPE TOWN – In 1987 England’s cricket team beat Australia in the Ashes for the fifth time in six series. It was the crowning achievement of a decade and a half of dominating their traditional rivals.
In the six months that followed, the FTSE in London rose by 34%. It was the highest such gain experienced following the Ashes, but this phenomenon was not unusual.
According to data from IG Markets, since 1985 the six months following any Ashes series has seen the winning country’s stock market go up by an average of almost 10%. When England wins in Australia, this average goes up to 17%.
Cricket has a huge following in both England and Australia, and nothing is bigger for either country than the Ashes. But can sport really move markets?
Further data from IG Markets suggests that maybe it can.
On October 20, 2007, the Sprinboks won their second Rugby World Cup by beating England in the final in Paris. During the team’s unbeaten run through the tournament, the rand strengthened by 4.3% against the US dollar. Following the victory, the rand gained 7.0% against the British pound in just one week.
Might Jean de Villiers and his men be able to do something similar this year? Could they reverse some of the present weakness in the currency if they lift the William Web Ellis trophy in the UK?
“Major sporting victories can lift sentiment and have a real impact on the economy and financial markets,” says John Cairns of Rand Merchant Bank’s Global Markets Research team. “One only has to think of Mandela in a Springbok Jersey and our win at the 1995 World Cup to see the effect that sport can have on a nation”.
The RMB/BER Consumer Confidence Index tells a story. Consumer sentiment in South Africa reached its two highest points over the last 20 years in the two pivotal years for our rugby team: immediately after the 1995 World Cup victory, and then again in 2007.
Sporting events also appear to lift specific stocks. During the 2007 rugby World Cup, SABMiller’s share price went up by 7.5%. Might specific stocks benefit from a South African victory this year too?
“Sporting goods chain Holdsport reported a big impact from the Rugby World Cup in 2011, when New Zealand claimed the title on home soil,” says Travis Robson, Head of Premium Client Management. “If South Africa wins the trophy, that impact could be replicated. Mr Price Sport, which is owned by Mr Price Group, may see a similar effect.”
IG Markets premium client manager Leigh Riley takes a less nuanced view.
“SABMiller should benefit because a lot of beer will be drunk, and local retailers like Woolworths, Pick n Pay and Shoprite will benefit as a lot of barbecues shall be had,” Riley says. “These will be followed by pharmaceutical stocks, to deal with the insurmountable hangovers.”
It’s the currency that needs the most help though. And unfortunately Cairns feels that we shouldn’t put too much hope in De Villiers and his team being able to rescue the rand from its current levels.
“While a World Cup win this year would do wonders for the sentiment in South Africa, I doubt it would have more than passing influence on the rand,” says Cairns.
He quips that it is in any case time that someone other than the Sprinboks took responsibility for the exchange rate.
“Its usual for financial markets to react aggressively to the first time something happens, more sanguinely the second time, and ignore it the third time,” says Cairns. “We see declining economies of scale from rugby. Maybe we need to win something else for a change. Besides, given the current rand trend, maybe South Africa would need to win the Rugby World Cup, the Cricket World Cup and Soccer World Cup to change things around.”