Olympics will boost Brazil market if history is a guide

The Olympic Rings in Madureira Park in Rio de Janeiro, Brazil.
Getty Images
The Olympic Rings in Madureira Park in Rio de Janeiro, Brazil.

The games of the 31st Olympiad are underway in Rio de Janeiro, and if history is any guide, Brazil's stock market may be bringing home the gold.

Looking back at each of the last eight Summer Olympics (starting with the Los Angeles Games in 1984), the stock index of the host country increased in value in six out of eight times through the two-week period that the games were held, according to Factset Research Analyst Andrew Birstingl.

"The only declines came from the 2000 Sydney Games when the S&P ASX 200 lost 0.9% in value during the event, and the 2008 Beijing Games, when the SSE Composite fell 7.7% in value," he wrote in a recent report titled Stock Market Performance and the Summer Olympics.

The modern games — launched in 1896 — go much further back than the creation of most countries' stock indices, making a longer-term comparison difficult. But over the past three decades at least, the games have coincided with rising stocks in their host countries.

Further, following the past eight Summer Olympics, the average change of the local index one year after the closing ceremony was 23.8 percent, compared with the 10.7 percent change in the broader MSCI World Index. Six of the eight local indices outperformed the MSCI World Index a year after the closing ceremony, Birstingl said.

Brazil's benchmark Bovespa stock index is up more than 33 percent so far in 2016.

It's worth noting that although events such as the Olympic games may affect stock markets, they're of course not necessarily the top factor shaping equity performance in those countries.

Economically, costs outweigh benefits

The monetary cost of putting on an international sporting event like the Olympics can be steep. According to a recent study by Oxford University's Said Business School, the average cost of hosting the Summer Olympics in the last decade was $8.9 billion (not including road, rail, airport and hotel infrastructure, which often cost more than the games themselves).

The study cites the projected cost (as of January 2016) for Rio at $4.6 billion. The games' total cost is closer to $12 billion, according to Reuters.

With a nominal gross domestic product of $1.5 trillion, Brazil ranks as the ninth largest economy in the world, controlling more than 2 percent of the globe's total GDP. Some critics have argued that despite the display of economic might that's typically associated with hosting an international sporting event, the Rio Olympics will do little to help the country's economy.

Despite a robust stock market, Brazil's economy shrank by 3.8 percent in 2015. The IMF projects the country's economy to shrink by 3.3 percent this year before leveling off in 2017.

Though the Brazilian Bovespa index is one of the best-performing global indices this year, it's down more than 23 percent from its all-time high, reached in 2008. Similarly, the iShares MSCI Brazil Capped ETF that tracks the investment results of an index composed of Brazilian equities is up more than 60 percent year-to-date but remains significantly below 2008 highs.

Sponsors’ gain

It's not only stock markets that often benefit during the games. While some see the games as being about sportsmanship and athletic prowess, for companies that partner or sponsor teams, it's also an occasion to position themselves as global brands.

Since the 2000 Summer Olympic Games in Sydney, four public companies have been consistent worldwide marketers at the games. Those companies are Coca-Cola, McDonald's, Panasonic and Samsung, according to Factset.

Since the 2000 games, stocks of each company outperformed the MSCI World Index over the two-week event. Panasonic was the top performer in that time, beating the index by 2.8 percentage points, according to Factset.

This year, global consumer brands such as Coca-Cola, The Swatch Group (owner of Omega watches), Procter and Gamble, GE, McDonald's and Visa are some of the big advertisers. Nike, Kellogg, AT&T and Citigroup are a few sponsors of Team USA in this year's event.

Disclosure: CNBC parent NBCUniversal owns NBC Sports and NBC Olympics. NBC Olympics is the U.S. broadcast rights holder to all Summer and Winter Games through the year 2032.