Forbes – Aug 2016

As Rio 2016 Kicks Into Full Gear, Can The Surging Bovespa Receive An Olympic-Inspired Bump?

With the exception of a few notable cases brought about by extraordinary circumstances such as the global financial crisis eight years ago, local stock markets in the host nation of the Summer Olympics have spiked noticeably in recent years while the eyes of the world have gazed upon their nation for the momentous event.

Over the last three decades dating back to the 1984 Los Angeles Summer Olympics, six of the last eight host countries have enjoyed a bump among their main stock indexes while the Olympic cauldron remained lit. Although the Shanghai Composite Index plunged nearly 8% during the 2008 Games as the global subprime mortgage crisis escalated, local stock markets have enjoyed substantial gains in three of the last five Summer Olympics. When Atlanta hosted the Olympics for the first time ever in 1996, the Dow Jones Industrial Average jumped 4.66% amid an explosion in commercialism, as a towering, 65-foot high Coca-Cola bottle dominated the backdrop of the Centennial Olympic Stadium.

The Bovespa Stock Index, however, presents a unique set of circumstances that neither economists, nor foreign policy experts have encountered in the history of the modern day Olympics. As the Rio Olympics kick into full gear this week, analysts will keep a close eye on fluctuations in the Bovespa, beginning with Monday’s session – the first since the Games began with a resplendent Opening Ceremony on Friday evening.

Despite a deep, prolonged recession and a string of corruption scandals that have rocked the nation’s executive and legislative branches, Brazil’s currency and stock market have staged an improbable rally over the last several months. The Bovespa, Brazil’s benchmark index, has already surged 33% year-to-date and is up more than 4,500 points since the lower house of the Brazilian Parliament voted to initiate impeachment proceedings against suspended Brazil president Dilma Rousseff on April 17. Meanwhile, the Brazilian real has jumped nearly 25% against the U.S. dollar since last October, as the global Emerging Market rout has eased and foreign investors have regained confidence in the Brazilian economy. As a result, Foreign Direct Investment inflows in Brazil soared over the first quarter, rising considerably from $13.1 billion to $17 billion on an annual basis.

The Bovespa could be the latest local stock index to enjoy a bump from the Olympics while the world’s top athletes converge in Rio (Richard Heathcote/Getty Images).

“What is unusual about Brazil is the fact that the stock market has done as well as it has in the months leading up to the Olympics. I think quite frankly it’s because of the political environment in Brazil,” said James P. Moore, Jr., managing director of the Business, Society, and Public Policy Initiative at Georgetown University’s McDonough School of Business. “It was at such a low base that once President Rousseff was effectively arrested and the new government came in, it gave some ability to calm the fears of not only the Brazilian people, but investors and others overseas, allowing for the stock market to take off in a way that you would not necessarily see in the history of other stock exchanges and host countries.”

With an estimated half-million foreign visitors expected to descend upon Rio over the next two weeks, a litany of stocks in the tourism sector could flourish before the flames are extinguished. Analysts will closely monitor transport stocks to gauge demand among airlines and rental car companies, as well as hotel occupancy for a comparison with vacancy rates two summers ago during the 2014 World Cup. Last week, Quartz reported that there were 27,137 hotel rooms in Rio de Janeiro for the month of June, representing a 37% uptick from 2012, according to research firm STR.

As the Atlanta Olympics illustrated, the Games have been synonymous with major international brands such as Coke, Samsung and Visa – each of which will maintain a significant presence in Rio. While many industry experts anticipate a boon for the household names, a number of Latin American analysts are more focused on the impact of the Olympics on leading Brazilian sponsors. Claro, the parent company of Brazilian telecom giant Embratel, will have its logo plastered throughout the net at the Beach Volleyball venue on Copacabana beach. Others like Brazilian beverage company AmBev, the fifth-largest brewery in the world, hope to grow their brand outside South America, as thousands of foreigners try the samba for the first time.