Backing the financial winners from the Games
Are you playing the Olympics right? As the Games kick off this week, it's time to check if your portfolio is positioned in a way to make the best of the event, which is expected to affect stocks, the economy, property and currency, though experts differ on the degree.
Certain stocks benefit every time the Olympics are around the corner, according to Joseph Tong Tang, executive director of Sun Hung Kai Financial. 'Stocks related to sports facilities or sports apparel such as Li Ning will gain,' Tong said. 'Television and advertising industries will also get a boost.'
But Tong expects British companies to benefit less from the Olympics than the Chinese ones did last time round.
'The Beijing Olympics gave many Chinese companies worldwide exposure. London is already an international market, so the British companies won't get that much of a push from the Olympics,' he said.
Dan Morris, global market strategist at JPMorgan Asset Management, said the more direct beneficiaries of the event would be stocks of domestic construction or engineering firms, which had actually been underperforming the market in the past 18 months.
'Hotel, restaurant and leisure stocks have been doing better this year. There's a chance they will benefit from the spurt in tourism, though it is not certain revenues will actually be higher than they were last summer,' Morris said.
'As for sterling, it is hard to see how any impact from the Games will not be overwhelmed by other forces affecting the dollar or the euro.'
Mainland securities firm Sinolink Securities said in a report that the London Olympics would boost aviation and tourism stocks.
'The London Olympic Games run from the middle of July to early August, coinciding with the summer holidays. This will benefit airlines, tourism agencies as well as hotel and restaurant businesses,' the Sinolink report said.
'The Games will also benefit media companies, which will see more advertising income. Many electrical appliance companies will also benefit as people upgrade to better-quality television sets to watch the Games.'
Philip Tsai, a partner at international accounting firm Deloitte, said the Games were usually accompanied by a major upswing in advertising, but being a planned event, any impact on related companies might already have been factored into their stock prices. 'There are significant intangible benefits from being associated with the Games, but the impact on a company's value stemming from that association is hard to ascertain,' Tsai said.
As for the impact on the British economy, Tsai said the Games would provide a short-term boost through increased visitor numbers. 'Longer-term benefits will depend on whether British companies are able to capitalise on the reputational boost from hosting a successful event.'
Most analysts believe the Olympics will bring little joy to Britain from a macroeconomic perspective. In fact, in the short term, JPMorgan's Morris said the impact would likely be negative because of the huge upfront spending on infrastructure and security that would only be partly offset by visitor spending.
'London, or the UK in general, is already so popular as a tourist destination it is hard to argue the increased attention is really necessary, as opposed to the case for, say, Sydney,' Morris said.
'The benefits for the economy tend to come over the long term by way of advantages derived from improved transportation and some of the new construction.
'It's been notoriously difficult, though, to find longer-term uses for Olympic facilities. The 'Bird's Nest' stadium in Beijing is, I believe, in complete disuse now.'
Mark Konyn, chief executive of Cathay Conning Asset Management, is also sceptical of the immediate economic benefits of the Olympics. 'The cost of hosting and the disruption to local businesses suggest the Games generally are a drag on the local economy. London hotels are reporting vacancies for the Olympic weeks, suggesting fewer people will be travelling to London for the Games than expected, while businesses are planning for significant disruption.'
Andrew Cole, of Baring Asset Management in London, said the Olympics might only bring limited benefit to the host country. 'Between the processing of tickets for Olympic events and related consumer spending, we expect to see a one-off boost to the GDP of perhaps 0.3 per cent in the third quarter of the year,' he said.
'Of more importance, however, is likely to be the high volume of rain experienced throughout the UK in recent months. Both April and June have been the wettest months in the UK since records began more than a hundred years ago, dampening consumer spending and reducing income from tourism.' PricewaterhouseCoopers said the Olympics would likely boost GDP by 0.2 per cent in the third quarter.