20 JUL


Will equity investors also win?

The 2018 football World Cup has ended with a victory for France. Without a doubt, it has been an emotional rollercoaster for all fans. Will it also result in a victory for the French equity market and economy?

In order to have a clear view on the possible impact of a World Cup victory on equity market performances, we have analysed all past performances from the day after the final over a one-month, 3-month, 6-month and 12-month period.

Winner benefits up to three months after the victory

Our historical analysis starts in 1974 with the victory of West-Germany over the Netherlands in the final. Germany’s MSCI index performed extremely strongly after the World Cup victory relative to the MSCI World in USD. One-month after the victory, the MSCI Germany outperformed by around 4% and by 28% after six months. 

Is this just a random result or can we recognize a pattern? When analysing the relative performance of all World Cup winners (excluding Argentina, due to a lack of data), we observe that the winner’s stock market outperforms the MSCI World on average by more than 3% in USD in the month following the victory. Also on a 3-month horizon, a relative outperformance is still discernible, but fades afterwards. Of course, we recognise some exceptions, such as Brazil in 2002 which was hit at the time by economic turbulence due to the South-American crisis.

How is the French economy doing?

The French economy has benefitted from a broad-based economic recovery, supported by past and on-going domestic reforms, accommodative ECB monetary policy and a favourable global environment. France’s economic growth at a 2% pace year-on year is slightly below the eurozone average. Export growth is lower and the unemployment rate is higher.

Nevertheless, France managed to decrease its deficit to 2.6% of GPD thanks to the economic recovery and an increase in fiscal revenues. As a result, the deficit is now respecting the 3% limit of the EDP (EU Excessive Deficit Procedure).

Winning the World Cup could add, according to several estimations, around 0.1 - 0.2% economic growth in 2018, but challenges and risks remain present. Even though France is less reliant on exports than Germany, increased external trade tensions would negatively affect growth. Also, a slowdown in the pace of reforms could lead to growth falling short of expectations. The biggest challenge of France nevertheless remains the difficulties in regaining market share in international trade and improving competitiveness.

Can France’s stock market outperform?

As we stated above, winning the World Cup can help a country’s equity market outperform. The positive impact on sentiment is nevertheless temporary and one should of course never buy France’s stock market based on its recent World Cup Victory. We do not have a particular preference for French equities. MSCI France earnings growth seems to be more or less in line with the MSCI Europe, but valuation is slightly higher at 15.3 times expected earnings for the next 12 months.



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