The World Cup will boost spending in Brazil over the short term.
But it won’t “add a great deal in the way of spending relative to GDP and [won’t] propel the country into the club of developed market countries,” says Nick Robinson, head of Brazilian equities at Aberdeen, in a recent report.
That’s because, based on recent games revenues, “The hosts [of the World Cup and Olympics] are net losers,” he adds, noting “the two biggest sporting events in the world often add little value, especially when compared to other government initiatives” and economic trends.
Robinson says the Organizing Committee of the Olympic Games claims every city has broken even after hosting the games since 1984. However, he finds the committee fails to account for capital costs along with operating costs.
And, while the games can benefit individual companies, he suggests the economies of Greece, China and London—three countries that have hosted Olympic games over the last decade—haven’t seen any long-term benefits.
So, if your clients are looking to invest in Brazil to cash in on World Cup frenzy, says Robinson, encourage them to take a step back. They need to know that “Brazil’s economy is set to grow at about 2% this year, continuing one of its slowest rates of expansion since the 1990s. Meanwhile, inflation [is] expected to reach 6.3%, [which is] near the top of the Central Bank’s target range of 4.5%, plus or minus two percentage points.”
Though Robinson’s optimistic about the region’s long-term prospects, he suggests investors need to choose stocks carefully so they can avoid market risks, as well as problems at the political and company level. If the move is suitable, he adds, people can always invest in Latin America as a whole.