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Stock markets on retreat as England head to Euros

Thursday, June 09, 2016

Stock markets on retreat as England head to Euros

The Premier League this year marked a season of sporting history as much a miracle; the 2015/2016 English Premier League was finally won after numerous twists and turns. Tottenham finally succumbed to the pressure playing out a 2-2 draw with Chelsea to end their slim chances of ending their 55-year wait to win the league, crowning Leicester City champions, whilst baring the pain of having to endure yet another St. Totteringham's Day*.

Now that the season is over we have taken a breath, but only for a moment, given the Euros are just a day away.  And if this premier league season is anything to go by, well, well, well…do England actually stand a chance this summer?

But before we break out the bunting and the Three Lions t-shirts, let’s ask ourselves what effect the Euros, or a World Cup in which England competes in, have on the UK investment market – is there any relationship? 

Figure 1 shows the price changes in the FTSE 100 over major footballing events. For the eagle-eyed amongst you, the 1994 World Cup and 2008 Euros have been omitted from the table as England inconceivably did not qualify.

Figure 1 FTSE 100 price changes over a major football tournament featuring England

Source: Yahoo Finance

From the graph, we can clearly identify that, for the most part, the price of the FTSE 100 drops by the end of each of these events; unsurprising given the probable peak in skiving off work to watch cup matches. In fact, since 1990, only the 2006 World Cup and 2012 Euros had resulted in the value of the FTSE 100 increasing over the course of the tournament. 2006 and 2012 were years to be cheerful – expectations were high, great squads, topping the group stages and reaching the quarter finals in both competitions only to be eliminated on penalties by Portugal and Italy, respectively, after hard fought 0-0’s. No wonder there was this sense of optimism surrounding the UK which may have led to the FTSE 100 rising by 5.86% in 2006 and 2.27% in 2012.

Conversely, the 2002 World Cup saw a tournament where expectations for the England team were arguably at their peak. During the course of this tournament, the FTSE 100 dropped by a remarkable 7.63%. Indeed, many believe this was down to reverberations from the bursting of the dotcom bubble. Maybe this drop had nothing to do with the UK economy or investment markets whatsoever. Maybe this drop came about after England’s glorious world cup campaign (including a Beckham spot kick which essentially eliminated Argentina, one of the favourites of the competition) ended with an injury to David Seaman and goals from two of the greats, Ronaldinho and Rivaldo, amongst a golden era of Brazilian footballers. This was truly the tournament of ‘what could have been’ and this regrettable attitude and negativity clearly seeped its way into the FTSE 100.
For most of the other tournaments, England have been average at best. Though expectations have been ever-increasing, there is now a lack of any real optimism. Fans, employees and employers alike have now come to grips with skiving off work or school, quietly watching England scrape through the group stages and maybe even the round of 16, assuming a favourable draw, knowing that elimination is inevitable when up against the big guns in the competition. This widely expected sense of failure perhaps resonates into investment markets causing indices such as the FTSE 100 to depress, albeit at not-so-significant levels.

So over the course of the summer, from 10 June to 10 July, even as we cheer England on, remember to be cautious in investing in the UK market due to a likelihood of vulnerability to England’s performance in the Euros (as well as there being some important nationwide vote on whether we are even part of the European Union anymore!).

*St Totteringham's Day is the joyous occasion when Arsenal fans celebrate the fact that Tottenham can no longer catch Arsenal in the League

Chirag Jasani


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