With the 2012 Olympics well underway, many are paying close attention to London and the Games taking place in the British capital. While the sports are undoubtedly the main focus, some are also looking at the Olympics from an economic perspective as well.
While analysts are across the board on the impact of the Olympics on Britain, the intense level of spending for the event could act as a short-term stimulus for the country, as total expenditures for the Games could reach almost 1% of the total national GDP. In fact, Goldman Sachs estimates that British economic output will increase by about 0.3%-0.4% q/q for the third quarter of 2012, although they also expect this to largely reverse in the final quarter of the year.
Even more interesting is that the firm’s research shows that the last six summer Olympic hosts (Beijing, Athens, Sydney, Atlanta, Barcelona, and Seoul) all saw their home stock markets significantly outperform the MSCI World Index in the year following the Games. Some cases saw the former hosts outperform the global benchmark by as much as 2% per month, suggesting a pretty solid level of gains for host nations in the year after the event (also read Five Top Performing Country ETFs of 2012).
However, Britain is mired in an economic malaise and Europe’s never-ending woes are at its doorstep and threaten to derail any hope of a broad recovery in the UK. Furthermore, some analysts are extremely skeptical of the Olympics’ positive impact on an economy in the long term, citing the current debt troubles of Greece which were, in part, driven by the spending binge of the 2004 Athens Games.
How to Play
While there are a number of stocks that are based in the UK and trade on American exchanges, the best approach to play this trend is probably via British ETFs. Currently there are a handful of funds targeting the market in exchange-traded form allowing investors to take a basket approach to an Olympic-driven expansion or a further slide into the abyss in the British economy:
-iShares MSCI UK Index Fund (EWU)- This is the most liquid choice, offering broad exposure to British stocks and holding more than 100 stocks in total.
-United Kingdom AlphaDEX Fund (FKU)- A more active—and costly—approach, this fund holds about 75 stocks but looks to put the biggest weight in the most promising and highly rated stocks from the country.
-iShares MSCI United Kingdom Small Cap Index Fund (:EWUS)- This new fund offers a small cap focus to investors, although volume is quite light overall. Still, it offers a more consumer focused play that could be more directly impacted by the Games.
-CurrencyShares British Pound Sterling Trust (FXB)/iPath GBP-USD ETN (GBB)- For investors seeking to make a bet on the pound against the dollar, either of these Exchange-Traded Products could be the way to go, although it should be noted that the FXB is far more liquid than its ETN counterpart from iPath (also read UK ETF Investing 101).
What do you think? Is Great Britain a short term buy/sell because of the Olympics? Or is the whole idea of an ‘Olympic-boost’ nonsense?
Let us know what you think in the comments below!
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