Can Brazil (Pole) Vault Its Way Out of a Floundering Economy?

May 25, 2016

While the Olympic Games certainly impact a host country’s balance sheet, what about their impact on the local stock market? What do local businesses have to gain from the massive influx of tourism spending and how can we expect this to impact Brazil for the coming games?

Charted above is the calendar year performance of a hosting country’s local stock market index for the year in which it hosted the summer games. Two outliers are noticeably apparent: South Korea during its dramatic economic growth period and China during the recent financial crisis. Omitting these given their extenuating economic circumstances, the average performance at year-end is about +12%. While this sample size is much too small from which conclusions can be derived, there may be validity to the thought that the short-term net economic impact of hosting the Olympics is a positive one.

Brazil is expecting an influx of 500,000 tourists for the games, and oftentimes a tourist visiting specifically for the Olympics is likely to spend more money than the typical tourist. For example, in London during the 2012 games, an Olympic-specific tourist spent £1,290 vs. £650 of the commonplace tourist. With Brazil in its worst recession since the 1930s, the country needs as much of the Olympic stimulus that it can get. Unfortunately, Brazil is facing a staggering number of hurdles blocking it from attracting the tourists it desires. Bad press surrounding the mistreatment of local citizens, the Zika virus hotbed, and an unfinished Olympic infrastructure may keep the big spenders away. Managing a successful experience for the athletes and at-home viewers, let alone extracting economic benefit from tourists, may require too much of a Herculean effort for the struggling country. Either way, though, the short-term stock returns from Brazil will reflect the success – or lack thereof – of the country’s Olympic hosting prowess.