Buy South Korea ETF (EWY) On Olympics?

Today the 2018 Winter Olympics in Pyeongchang, South Korea began.

And like with almost anything – there’s a stock market angle for that.

The Olympics can fuel the host nation’s economy in anticipation of the event… and also deliver a jolt to national pride. And the big winners have their moment on the global stage. What does that mean for stock returns?

Maybe not what you might think.

The Winter Olympics and the host country

The table below shows the market returns for the market of the host of the Winter Olympics going back to 1988, compared to the returns of the MSCI All Country World Index (ACWI), a global stock market index.

On average, the host country market has underperformed the index during the three periods we looked at – the year before the Olympics were held; the year that the Olympics took place, and the two-year period encompassing the year of the event, and the following year. For example, the average return for the host country during the year of the Winter Olympics was 4.6 percent, compared to 7.5 percent for the index.

However, the stock market results for the 2014 host, Russia, dragged down the average substantially. Excluding the market returns for Russia in 2014, on average, the host country in fact outperformed the MSCI ACWI for two years following the Olympics. In total, six host countries out of seven (excluding 2014) outperformed the index after two years. And three host countries outperformed the index the year of the Olympics.

For example, in 2010, Canada hosted the Winter Olympics. Canadian shares actually outperformed the MSCI ACWI the year before the Olympics (with a 55.7 percent return versus 35.5 percent for the index), the year of the Olympics (with a 24.9 percent return versus 13.3 percent for the index) and during the following two years period (with an 11.5 percent return versus 5.5 percent for the index).

And in 2006, when Italy hosted, the Italian stock market outperformed the MSCI ACWI the year of the games (it returned 34.8 percent versus 21.6 percent for the index) and two years after (with a 45.6 percent return versus 37 percent for the index).

As for this year’s host, despite rising tensions on the peninsula stemming from North Korea’s nuclear threat, South Korea’s KOSPI index posted a 38.1 percent return in 2017 compared to the MSCI ACWI return of 24.6 percent. So far in 2018, Korean shares are down 2.7 percent compared to the MSCI ACWI’s 0.6 percent decline.

Here’s what happens to a country’s market when it wins the most gold medals

It’s not just the host country that can see a bump in its market from the Olympics, as you can see in the table below.

Since 1992, the countries that have won the most gold medals in the Winter Olympics have on average underperformed the index from the end of the Winter Olympics through the end of the calendar year. For example, countries that won the most gold medals only saw an average return of 1.5 percent versus the index’s 5.1 percent return for the rest of the year following the Winter Olympics.

But over the two-year period, the markets of countries that won the most gold medals outperformed the index. The average return of the markets of the countries that won the most gold medals in this two-year period saw a 22.9 percent return while the index only returned 19.7 percent.

But Russia, which won the most gold medals in 2014 and hosted the Winter Olympics, dragged down the average substantially, again. Excluding the market returns for Russia in 2014, countries that won the most gold medals posted an average return of 9.2 percent from the end of the Winter Olympics through the end of the calendar year. And in the following two years, countries that won the most gold medals (excluding 2014 Russia) saw even better results. They returned 34.9 percent, on average, over the two-year period.