Buy South Korea ETF (EWY) On Olympics?

Today – within moments of when you received this email – the 2018 Winter Olympics in Pyeongchang, South Korea will start.

And – like with most anything – there’s a stock market angle for that.

Know more about Russia than your friends:

Get our free ebook on how the Soviet Union became Putin's Russia.

The Olympics can fuel the host nation’s economy in anticipation of the event… and also deliver a jolt to national pride. And the big winners have their moment on the global stage. What does that mean for stock returns?

This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery

D1 CapitalThe first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More

Maybe not what you might think.

The Winter Olympics and the host country

The table below shows the market returns for the market of the host of the Winter Olympics going back to 1988, compared to the returns of the MSCI All Country World Index (ACWI), a global stock market index.

On average, the host country market has underperformed the index during the three periods we looked at – the year before the Olympics were held; the year that the Olympics took place, and the two-year period encompassing the year of the event, and the following year. For example, the average return for the host country during the year of the Winter Olympics was 4.6 percent, compared to 7.5 percent for the index.

However, the stock market results for the 2014 host, Russia, dragged down the average substantially. Excluding the market returns for Russia in 2014, on average, the host country in fact outperformed the MSCI ACWI for two years following the Olympics. In total, six host countries out of seven (excluding 2014) outperformed the index after two years. And three host countries outperformed the index the year of the Olympics.

For example, in 2010, Canada hosted the Winter Olympics. Canadian shares actually outperformed the MSCI ACWI the year before the Olympics (with a 55.7 percent return versus 35.5 percent for the index), the year of the Olympics (with a 24.9 percent return versus 13.3 percent for the index) and during the following two years period (with an 11.5 percent return versus 5.5 percent for the index).

And in 2006, when Italy hosted, the Italian stock market outperformed the MSCI ACWI the year of the games (it returned 34.8 percent versus 21.6 percent for the index) and two years after (with a 45.6 percent return versus 37 percent for the index).

As for this year’s host, despite rising tensions on the peninsula stemming from North Korea’s nuclear threat, South Korea’s KOSPI index posted a 38.1 percent return in 2017 compared to the MSCI ACWI return of 24.6 percent. So far in 2018, Korean shares are down 2.7 percent compared to the MSCI ACWI’s 0.6 percent decline.

Here’s what happens to a country’s market when it wins the most gold medals

It’s not just the host country that can see a bump in its market from the Olympics, as you can see in the table below.

Since 1992, the countries that have won the most gold medals in the Winter Olympics have on average underperformed the index from the end of the Winter Olympics through the end of the calendar year. For example, countries that won the most gold medals only saw an average return of 1.5 percent versus the index’s 5.1 percent return for the rest of the year following the Winter Olympics.

----------Recommended Link-----------

Trump vs. China: Make 10x from the smackdown
Donald Trump and China are about to go to battle… and prices of a small group of “hot commodities” will go up 1000%. Find how to position yourself before the gloves come off


But over the two-year period, the markets of countries that won the most gold medals outperformed the index. The average return of the markets of the countries that won the most gold medals in this two-year period saw a 22.9 percent return while the index only returned 19.7 percent.

But Russia, which won the most gold medals in 2014 and hosted the Winter Olympics, dragged down the average substantially, again. Excluding the market returns for Russia in 2014, countries that won the most gold medals posted an average return of 9.2 percent from the end of the Winter Olympics through the end of the calendar year. And in the following two years, countries that won the most gold medals (excluding 2014 Russia) saw even better results. They returned 34.9 percent, on average, over the two-year period.

In total, four out of five (excluding 1994 and 2014) of the countries that won the most medals outperformed the MSCI ACWI the rest of the year of the Olympics. And three out of five outperformed during the following two years.

For example, in 2006, Germany saw its market rise 24.1 percent after winning the most medals, versus a 15.1 percent return for the index. And over the two-year period, it was up 69.3 percent versus just 29.7 percent for the index.


So why would the stock market of a country that won the most gold medals in a global sporting event perform well afterwards?

Winning gold medals might be a sign of underlying health in a country’s economy. It could reflect that a country has sufficient means to invest in activities like sports, which bodes well for the advanced state of other parts of the country’s economy. But that’s pretty shaky.

As with a lot of quirks in markets – such as the January barometer, the Super Bowl indicator, sector rotation, and “sell in May and go away ” – there often isn’t a good explanation. But just because there’s not a good reason for an investment phenomenon doesn’t mean investors can’t make money from it.

However, keep in mind that this is a very small sample size. Our data goes back 30 years or less.

But it’s still worth paying attention to who wins the most gold medals at this year’s Olympics.

And if you’re interested in investing in South Korea, consider the iShares MSCI South Korea Capped ETF (NYSE; ticker: EWY).